Q4 2024 OPENLANE Inc Earnings Call
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Speaker Change: Good day and welcome to the Open Lane fourth quarter and year-end results 2024 conference call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero.
Speaker Change: Factors that could cause such differences include those discussed in our press release issued today and in our SEC filings.
Speaker Change: Certain non-GAAP financial measures as defined under SEC rules will be discussed on this call.
Speaker Change: Reconciliations of GAAP to non-GAAP measures are provided in our earnings materials and available in the Investor Relations section of our website.
Speaker Change: With that I'll turn the call over to Peter Peter.
Speaker Change: Thank you with two new and good afternoon, everyone.
Speaker Change: I'm pleased to be here today to share open lanes fourth quarter and year end results.
Speaker Change: I'll start with a few highlights let's spend the majority of my time discussing our strategy and we're open lane is headed.
Speaker Change: I will then walk you through the financials and provide our guidance for 2025.
Speaker Change: Openly and had a very positive fourth quarter and full year 2024 customers.
Speaker Change: Customers are responding to our unique offerings and the differentiated value we deliver in terms of ease speed and outcomes.
Speaker Change: The momentum that we're building and the market is tangible and all of this is reflected in our results.
Speaker Change: During the fourth quarter, we grew consolidated revenue by 12% and consolidated adjusted EBITDA by 18% driven mainly by a 9% increase in marketplace volumes.
Speaker Change: This marks the seventh straight quarter of year over year volume growth in the market place segments.
Speaker Change: This included a 15% increase in dealer volumes.
Speaker Change: The marketplace also generated $31 million and adjusted EBITDA during the quarter, an impressive 30% increase.
Speaker Change: On a full year basis openly and generated $293 million and adjusted EBITDA driven by a 24% increase in marketplace adjusted EBITA.
Speaker Change: We also generated $293 million in cash flow from operations and our gross merchandise value grew 12% to $27 billion.
Other powerful indicator of the momentum we're building in the market.
Speaker Change: I won't spend a lot of time on our finance segments today, given our detailed AFC investor update last November.
Speaker Change: We'll call out that AFC groups or kind of originations.
Speaker Change: The loan loss rates to its lowest level in eight quarters and generated $159 million of adjusted EBITDA for the year.
Speaker Change: So in summary, open lanes consistent pattern of growth and financial performance clearly demonstrates the strong scalability characteristics of our asset light digital model.
Speaker Change: Fuels my optimism for our long term growth and volume market share and profitability.
Speaker Change: With that let me turn to our strategy and how we plan to build on this positive momentum.
Speaker Change: As a reminder, 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: And we're making wholesale easy by focusing on three enabling priorities.
Speaker Change: First by delivering the best marketplace, expanding to more buyers and more sellers and offering the most diverse commercial and dealer inventory available.
Speaker Change: Second by delivering the best technology innovative products and services that help our customers make informed decisions and achieve better outcomes.
Speaker Change: And third by delivering the best customer experience, keeping our marketplace fast fair and transparent, making it easy for customers to transact and making open lane the most preferred marketplace.
As I approach my four year anniversary as CEO I believe open lane is better positioned than ever to deliver on these priorities based on the many positive changes we've made during this period.
Speaker Change: We acquired integrated and consolidated new digital assets.
Speaker Change: We divested our physical assets paid down debt and improve the strength of our balance sheet.
Speaker Change: We rebranded the company into what I believe is rapidly becoming the strongest brand in our industry.
Speaker Change: <unk> enhanced our team with new digital talent, and we unified our culture around our customers.
Speaker Change: We're a very different company today, and I would argue are much better and stronger company as well so.
Speaker Change: So when I think about our strategy delivering the best marketplace, the best technology and the best customer experience the word that I'm anchoring on for 2025 is execution.
Speaker Change: So building on all that we've accomplished to date now at the time for us to execute and win.
Speaker Change: In terms of the marketplace 2025 will be the bottom of the cycle for off lease supply, we know that going in however.
Speaker Change: However, we also have a clear line of sight that these volumes are coming back.
Speaker Change: New lease originations rose for the seventh straight quarter in Q4, and the majority of that volume will flow through open late first as those leases mature in 2026 and beyond.
Speaker Change: At the same time, our data and the industry data.
Speaker Change: Firm that the equity gap between off these values and residual lease values continues to narrow.
Speaker Change: This means a lower percentage of leased vehicles will be paid off when they mature and that will also result in more volume flowing through our marketplace.
Speaker Change: So essentially what was a double whammy for us over the past few years now looks set to become a double tailwind starting in 2026 and beyond.
Speaker Change: That is increased volumes of lease maturities and a declining payout percentage.
Speaker Change: And this will be to open lanes benefit.
Speaker Change: We already support the majority of OEM and financial institution leasing programs in North America today.
Speaker Change: And we were recently awarded backs the off lease remarketing business for large OEM.
Speaker Change: Which evidence is open lanes technology advantage, leading customer experience depth of remarketing knowledge and expert decision support capability.
Speaker Change: So I feel very good about our growth potential in commercial but I'm equally optimistic about the opportunity in dealer and the dealer to dealer space.
Speaker Change: So let me turn to that now.
Speaker Change: On the dealer front, our growth accelerated through every quarter in 2024 from lower volumes early in the year to single digit growth in Q3, and then 15% dealer growth in Q4.
Speaker Change: Peter listings grew unique sellers and buyers grew and we had several record months in terms of new dealer sign ups in the United States.
Speaker Change: So there was a lot of positive momentum going into 2025.
Speaker Change: And there is still a lot of opportunity for growth.
Speaker Change: I remain fundamentally convinced that digital is the future.
Speaker Change: We have seen that in almost every industry.
Speaker Change: Openly and offers a faster more convenient solution that produces better outcomes for customers at a lower cost.
Speaker Change: That's something the physical auctions cannot easily replicate and it's something our customers are increasingly drawn to.
Speaker Change: We're seeing it in our positive N P. S surveys, we're hearing it from customers during dealership visits and industry events and most importantly, we're seeing it in our volume growth.
Speaker Change: So the Tam is very large we are well positioned in dealer to dealer and I see this as a source of robust long term sustainable growth for open late.
Speaker Change: Hopefully these perspectives help reinforce what I believe is a positive industry position for open lane as we look to 2025 and to the years that follow.
Speaker Change: And I'm confident we can capture these opportunities by continuing to invest in and execute on our strategy.
Speaker Change: In the middle of last year, we made some meaningful investments in product people and our go to market approach.
Speaker Change: More sales more marketing and more innovation.
Speaker Change: Including our recent launch of one app in the U S.
Speaker Change: This new version of our platform allows dealers to seamlessly toggle between buying and selling and creates a direct link between the open marketplace and our private label programs.
Speaker Change: This is two beneficial effects first it connects our private label franchise dealers directly into the open line marketplace.
Speaker Change: And it offers the off lease inventory that passes through the private labels to every franchise and independent dealer on our marketplace.
Speaker Change: More buyers more sellers and more inventory.
Speaker Change: I don't think we've seen the full impact of these investments yet, but our performance in the second half of the year definitely reflects some of the fruits of these investments.
Speaker Change: So we're going to lean in and invest further in delivering the best marketplace, The best technology and the best customer experience.
Speaker Change: We have a robust pipeline of innovation slated for 2025, and we look forward to sharing over the coming weeks and months.
Speaker Change: These include additional enhancements to our condition reports deeper market insights around supply demand values and pricing.
Speaker Change: More AI enabled features and capabilities and more actionable data to help dealers make the best buying and selling decisions possible.
Speaker Change: To help promote these innovations and to stimulate even more dealer engagement. We're also investing in our go to market approach.
Speaker Change: Sometimes hard to believe that open lane has only been our flagship Brent marketplace brand in the United States for 16 months.
Speaker Change: And I'm very pleased that both our internal surveys and third party sources show that open lane as rapid declining the ranks of the most recognized and most preferred market place in the industry.
Speaker Change: Anecdotally I had one Midwestern dealer told me recently that six months ago he'd never heard of openly.
Speaker Change: And now where its preferred solution.
Speaker Change: That's encouraging and it reinforces to me that we're on the right track.
Speaker Change: So we will continue to lean into broader awareness campaigns to support new market expansion more personalized journeys to stimulate engagement and more targeted promotions to drive up transaction volume and wallet share.
Speaker Change: I had a west coast theaters takes me during the fourth quarter that open Lane is everywhere. These days.
Speaker Change: And that's precisely our goal to be the first to mind first to list first to sell and first to buy.
Speaker Change: And then finally, we are investing more in people more feet on the street more sales resources in a more personal support for our customers.
Speaker Change: As I've said before on these calls open lane is a digital marketplace in a relationship business.
Speaker Change: Our collaborative partnership approach, we take with our customers' fosters greater customer loyalty and ultimately will earn us a greater share of their business.
Speaker Change: As we've mentioned previously we are making meaningful go to market investments in our U S Theater business. We have made the strategic decision to invest now to further accelerate our dealer volumes and share.
Speaker Change: We're already very strong in commercial off lease and we believe that these volumes will begin to return in 2026 and continue to grow thereafter, but.
Speaker Change: But I wanted to be sure we are equally strong and dealer to dealer delivering growth in 2025, and continuing to grow as a multiplier to our commercial growth.
Speaker Change: These investments are reflected in our 2025 guidance, but you will also see you will also see our confidence in open lanes ability to both invest and grow revenue and also grow adjusted EBITDA simultaneously just as we did in 2024.
Speaker Change: So overall I believe we're well positioned to execute our strategy for growth and I believe a key value proposition for investors remains compelling.
Speaker Change: Open Lane as an asset light highly scalable digital marketplace leader.
Speaker Change: Focused on making wholesale easy for automotive dealers manufacturers and commercial sellers.
Speaker Change: There is a large addressable markets in North America, and in Europe, and we're uniquely well positioned with both dealer and commercial segments.
Speaker Change: Our technology advantage is a competitive differentiator that enables us to bring new products and features to market very quickly.
Speaker Change: Our floor plan finance business as a category leader that is highly synergistic with our marketplace.
Speaker Change: We are cash flow positive with a strong balance sheet and well positioned to invest in growth and deliver shareholder returns.
Speaker Change: And we believe that our business has the capabilities to deliver meaningful earnings growth over the next several years.
Speaker Change: So before I turn things over to Brad I want to remind you that this will be his last earnings call with open Lane I appreciate his leadership and many contributions to our company and we wish him all the best.
Speaker Change: As an update to our search we have been actively evaluating CFO candidates for the past few months and we look forward to introducing you to our new CFO when a final decision is made.
Speaker Change: So with that I'll now turn the call over to Brett.
Brett: Thank you Peter.
Brett: We had a successful 2024 and fourth quarter, delivering strong operating and financial results the.
Brett: The investments made in innovation, our go to market strategy and our disciplined cost management culture are reflected in these results.
Brett: We opened nine team executed and a superior manner, resulting in a strengthened marketplace platform that is winning in the market and consistently delivering excellent and easier customer outcomes.
Brett: As usual certain comments I make related to consolidated open lane and the marketplace segment or on a net revenue basis, which excludes the impact of purchase vehicles sales.
Brett: In addition, my comments will be on a fourth quarter year over year basis, unless I state otherwise.
Brett: I will start with the results at a consolidated level and will then cover segment results.
Brett: Finally, I will wrap up with some commentary on expectations for 2025.
Brett: Our consolidated revenue was 455 million up 12% the third consecutive quarter of top line growth, reflecting improved momentum in each of our segments.
Brett: Revenue growth was mainly driven by the 9% unit volume growth within our market place segment.
Brett: Total cost of services was $245 million up 19%, primarily due to increased marketplace volumes and mix shift.
Brett: Adjusted EBITDA was $73 million up 18%.
Brett: While full year adjusted EBITDA was $293 million up 8% driven by increased marketplace volume lower SG&A and increased auction fees.
Brett: Consolidated SG&A for the quarter was $100 million down 2%, while full year consolidated SG&A was $409 million down 3%.
Brett: This reflects the successful execution of our cost savings initiatives, which have more than offset general inflationary headwinds and the incremental go to market investments. We made in the second half of 2024.
The net decrease in SG&A is primarily attributed to lower compensation expenses and professional fees and the realization of cost savings from our technology platform consolidation initiative.
Brett: As a company we remain committed to maintaining a culture of rigorous cost management that will continue to unlock investment in growth and innovation.
Brett: Turning to the marketplace segment revenue increased 8% to $349 million.
Brett: Our total volumes were up 9% with dealer volumes up 15% and commercial volumes up 5%.
Brett: The dealer growth was fueled by successful investments in our U S go to market strategy as well as as well as increased demand in Canada.
Brett: Auction fee revenue increased by 24% driven primarily by 9% volume growth sales mix and auction fee price increases.
Brett: As reported services revenue was down 2%.
Brett: However, excluding the transportation accounting change services revenue increased by 1%.
Brett: Gross profit was up 20%, primarily due to increased volumes and lower depreciation and amortization costs.
Brett: Please note we have updated our marketplace gross profit calculation in our 10-K marketplace. Gross profit is now reported on a GAAP basis, which includes an allocation of depreciation and amortization within the cost of services.
Brett: This method has been applied to comparable periods and a reconciliation to adjusted gross profit is now available in the supplemental materials posted on our website earlier today.
Brett: Marketplace SG&A decreased by 1% in the fourth quarter and by 3% for the full year driven by the factors discussed earlier.
Brett: Marketplace. Adjusted EBITDA was 31 million up 30% full year marketplace. Adjusted EBITDA was 135 million up 24%.
Brett: This improvement was driven by volume growth higher auction fees and lower cost.
Brett: As Peter stated 2024 was a strong year for our marketplace business. We are pleased to see open lanes momentum accelerate.
Brett: Our dealer business is growing by offering a better faster higher value solution at a lower cost.
Brett: This combination represents a highly scalable competitively differentiated business model, particularly when compared to physical models are.
Brett: Our commercial business as a clear market leader and is well positioned to capture the benefits of the anticipated increase in lease maturities beginning in 2026.
Brett: Our pipeline of innovation is extending our technology advantage and we believe our focus on customer experience creates the opportunity to position open Lane has the most preferred digital marketplace provider.
Brett: These factors amongst others give us confidence in our strategy and increased willingness to invest for growth.
Brett: As I turn to our finance segment I would like to remind you of the updates we've made for our AFC business. These changes were detailed in our November investor update which is available on our Investor Relations webpage.
Brett: We feel these enhancements will improve investor understanding of this business better highlight AFC is top quartile performance metrics and should improve one's ability to value. This meaningful part of open lane.
Brett: Turning to our finance segment results for the quarter total finance revenues were down 5%, primarily driven by lower vehicle values.
Brett: Lower interest rates and a decrease in days outstanding.
Brett: This was partially offset by a modest increase in volumes.
Brett: In the quarter Floorplan originations were up 6% for planned curtailments were down 7% and total loan transactions were up 1%.
Brett: The growth in Floorplan originations was primarily due to two factors.
Brett: First we focus on organic growth initiatives during the quarter, which yielded positive results.
Brett: Second we saw a notable increase in independent dealer sentiment and health.
Brett: Overall inventory on dealer lots increased in the quarter and this was further supported by an improved inventory inventory turnover evidenced by a decrease in days outstanding and a decrease in curtailments.
Net finance margin was $78 million, reflecting a yield of 13, 8% up 50 basis points due to an increase in floorplan originations coupled with a decrease in average vehicle values.
Brett: Finance segment, adjusted EBITDA was $42 million up 10% and representing the first quarter of year over year adjusted EBITDA growth in eight quarters.
Brett: This improvement reflects the improved dealer fundamentals already discussed improved risk management and disciplined cost management.
Brett: Finance SG&A was down 6% driven by factors discussed earlier.
Brett: And from a risk management perspective, we were pleased with our fourth quarter provision for credit losses of one 9%.
Brett: This is the lowest rate in eight quarters, reflecting improved fundamentals and our leading proprietary risk management capability with.
Brett: We saw consistent improvement in the in the frequency and severity of losses during the quarter and throughout 2024 as a whole.
Brett: And we expect these improvements will continue through the first half of 2025.
Brett: AFC is continued strong performance in 'twenty 'twenty four can also be attributed to its unique service delivery model and robust customer relationships.
As we've previously highlighted AFC is a core business for open lane that is complementary to our marketplace business.
Brett: Its leading financial returns and risk management processes underscore afc's overall strength and durability.
Brett: In addition, <unk> strong cash flow characteristics fuel innovation across open lane and strengthens our capital allocation strategy.
Brett: Moving to the balance sheet and capital allocation consistent with prior quarters, we continue to generate strong cash flow.
Brett: We ended the year with an improved balance sheet and liquidity.
Brett: We had $293 million of cash flow from operations and our consolidated net leverage stands at approximately 0.3 times.
Brett: This level of cash generation demonstrates the value of our asset light digitally focused marketplace business working in combination with our leading floor plan finance business.
Brett: Overall, the core of our capital allocation framework remains the same.
We continue to prioritize the funding of organic investments, while ensuring flexibility for high return complementary strategic opportunities and shareholder returns.
Brett: In 2024, we bought back approximately one 8 million shares as part of our share repurchase program.
As of the end of 'twenty 'twenty four we have approximately 100 million available for repurchase under the program.
Brett: And our philosophy on share repurchases will remain principled and opportunistic.
Brett: In addition, as mentioned in prior calls we plan to use cash flow from operations and available liquidity to repay the 210 million senior note due in June of this year.
Brett: Looking ahead to 2025 I'd like to provide some commentary on factors that we expect will impact our business performance this year.
Brett: From an industry perspective.
Brett: And as discussed regularly the last year or two we are now in the midst of the most challenging period of off lease maturities and less low point will continue through 2025 until we expect to see improvements beginning in 2026.
Brett: From a macro perspective like all industries, we continue to experience a wide range of macro uncertainties.
Brett: And more recently this has resulted in a strengthening U S dollar, which is creating some translation headwinds.
Brett: In terms of our business portfolio, we completed the sale of our automotive key business in the fourth quarter.
Brett: This service business was not core to our digital marketplace business model and represented approximately 2% to 3% up open lanes 'twenty 'twenty four consolidated net revenue and adjusted EBITDA.
Brett: The sale of advances our strategy further simplifies our business model and enhances value for both our customers and investors.
Brett: With regard to our go to market initiatives, we plan to continue to make investments in the first half of 2025 consistent with the second half of 'twenty 'twenty four.
Brett: We're seeing the returns from these incremental investments and therefore, we have confidence further and ongoing investments will not only drive growth, but will improve our customer experience.
Brett: Given these factors and others, we expect our 2025 adjusted EBITDA to be between 290 and $310 million.
Brett: And we expect our operating adjusted earnings per share to be between 90 and.
Brett: And one dollar.
Finally, we expect capital expenditures to be between 50 million and $55 million in 2025, which is in line with 2024.
Brett: Further support for these guidance metrics are available in our earnings release published earlier today.
Brett: To summarize our fourth quarter results volumes grew by 9% driven by 15% dealer growth.
Brett: Consolidated adjusted EBITDA grew 18% with marketplace adjusted EBITDA growth of 30%.
Brett: And we generated $293 million of cash flow from operations for the year.
Speaker Change: As Peter mentioned earlier. This is my final open Lane earnings call. So I want to close by expressing my appreciation and gratitude.
Brett: It's been a privilege and an honor to serve an open line.
Brett: Open Lane has the right strategy, the right business model and a talented winning leadership team who are committed to our purpose. Therefore I remain optimistic about <unk> future.
Brett: Peter Thank you and the entire open lane team for supporting me and making me a better leader and finally I want to thank our entire investment community for your support insights and trust.
Brett: With that I'll turn the call over to the operator for questions.
Brett: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
And the first question will be from Bob Lieber from C. J S Securities. Please go ahead.
Will: Hi, This is will on for Bob with the industry decline in off lease vehicles, how our dealers handling trade ins.
Will: Are they keeping more in setting myself, Jim or you know how the volumes have been steady.
Will: Yeah.
Speaker Change: Thank you will you know volumes have been steady or strong.
Speaker Change: Our <unk> volume growth in the fourth quarter was 15% that's the strongest growth we had all.
Speaker Change: All year, so very pleased with that number.
Speaker Change: We grew our.
Speaker Change: Active base of sellers and buyers.
Speaker Change: We had some really strong months of new dealer sign ups on the platform as well in the United States in the fourth quarter. So I was really pleased with all of that and even though we didn't say it in our remarks, our volume of listings I believe grew even faster than the 15% volume of sales. So I'm not noticing any lack of inventory out there of dealers.
Speaker Change: At least not at least not to this point so.
So feeling good about that well thank you.
Speaker Change: Thank you very helpful. And then just one more do you expect Canadian wholesale volume speed.
Speaker Change: By tariffs or trade war.
Speaker Change: Yeah.
Speaker Change: I guess, what I'd say to that is first of all you know I think open lane is very well positioned to survive to prosper and do well in any sort of environment, we find ourselves and you know if I look at the fourth quarter, we see.
Speaker Change: Progress strong progress on the commercial front, where commercial volume growth, new customer wins and strong progress on the dealer front.
Speaker Change: You know just which I was just speaking about so you know I.
Speaker Change: I feel good about how we're positioned exiting the year and starting the new year with our asset light business model.
Speaker Change: With a strong balance sheet and frankly with the management team that has been through you know I'd say some challenging macro environments here over the last four years, so I feel really good about that.
Speaker Change: There's a lot of speculation out there about tariffs will it be applied hall will leave apply to will be applied to used car as part of the percentages. So theres a whole range of variables there that I don't really want to speculate on.
Speaker Change: But I'm confident that this company is well positioned to prosper in whatever environment, we find ourselves in.
Speaker Change: Thank you.
Will: Thanks will.
Speaker Change: And the next question will be from Rajat Gupta from Jpmorgan. Please go ahead.
Rajat Gupta: Great. Thanks for taking the question.
Rajat Gupta: I have one first question on the <unk> volumes nice nice acceleration here.
Progress so congrats on that I'm curious if you could give us a sense of you know.
Rajat Gupta: What do you think the market did in the quarter.
Rajat Gupta: And what's your share gains or.
Rajat Gupta: In the U S. So quickly.
Rajat Gupta: And then as a follow up question anything you could give us in terms of what's baked into your guidance into wide range. Obviously in terms of your outlook for both dealer and commercial volumes.
Rajat Gupta: Yes.
Speaker Change: Thanks, Ross So let me take the first part of that question first.
Speaker Change: So I guess, yes, indeed, I'm pleased with the performance in the quarter as as I mentioned.
Speaker Change: It was our strongest quarter of the four quarters in 2024, 15% year on year growth.
Speaker Change: We saw solid growth in both.
Speaker Change: The United States, and Canada saw good growth in both markets I feel good about that as well.
Speaker Change: Not only volume growth with volume growth on vehicles offered for sale and on participating sellers and buyers. So.
Speaker Change: I feel really good about that your question had sort of specifics around the United States.
Speaker Change: In the United States I feel really good about the additional investments we leaned into sort of at the end of the second quarter beginning of the third quarter. So that was a strategic decision. We made is coming off the open lane rebranding at the integration of the commercial inventory. We felt now was the time to sort of you know.
Speaker Change: Hit the accelerator a little bit on on our go to market approach. So we've made some I'd say, a very targeted and thoughtful investments both in technology and sales and marketing efforts.
Speaker Change: To go out there and sort of girl participation and I see that paying off I don't think we've seen the full payoff on that yet, but I think some of the impacts of those investments were watched you know drove the improving performance through the end of the fourth quarter.
Speaker Change: <unk>.
Speaker Change: So feeling good about that frankly that caused me to <unk>.
Increased those investments slightly towards the end of the fourth quarter as well. So we've got some strong momentum here going into 2025.
Speaker Change: And I guess as I look at the U S market Rajat.
Speaker Change: I see us as a fairly today, a fairly small player market share wise in a very large tam.
Speaker Change: Okay. So our market share in the U S is relatively small, but our offering I believe has very very strong and you know I I hear that feedback from our dealers when we talk to them I see that in our NPS surveys I see that in the repeat use and adoption we have in the platform. So I feel very bullish about the <unk> market.
Speaker Change: And I look at the sort of <unk> opportunity as a source of sustainable long term growth for this company.
Speaker Change: So that's kind of how im looking at it.
Speaker Change: And that's how we're going to we're going to go after it you know on the commercial side.
Speaker Change: Obviously our.
Speaker Change: Our commercial footprint, particularly with off lease sellers as a.
Speaker Change: One of the things that makes this company unique it's a strong source of differentiation.
Speaker Change: So again I feel really good about that.
Speaker Change: It happens as you know the 2025 will be a challenging year in terms of overall commercial off lease volumes because of the low lease originations in 2022. So that's a known factor going in our guidance reflects that.
Speaker Change: But you know what I take a lot of confidence from is that despite that and by the way that was also the case in Q4. So you know commercial volume maturities in Q4 were down versus Q4 of the prior year, but nonetheless, our business delivered a very strong performance. So I'm looking at a continued strong performance.
Speaker Change: On the commercial side of this business in 2025, and then the acceleration of that in 'twenty, six seven and beyond and I think so when I sort of put those two things together of a you know.
Speaker Change: A dealer business that is growing steadily over time.
Speaker Change: We can grow our share grow our customer base and grow our Tam.
Speaker Change: Alongside that of commercial business, that's going to start accelerating in 'twenty six seven and eight.
Speaker Change: Alongside a strong finance business to <unk>.
Speaker Change: You know delivering outstanding results.
Speaker Change: Put that together into a very strong opportunity here for open lane and that's what it is you know that that's what.
Speaker Change: Has me excited about the prospects for this company.
Great. Thanks, I'll jump off.
Speaker Change: And the next question will be from Craig Kennison from Baird. Please go ahead.
Craig Kennison: Hey, good afternoon. Thanks for taking my question and Brad I, just want to wish you well you had a very positive impact on open lane.
Speaker Change: Maybe I'll start with you Brad.
Speaker Change: I see a line item on the cash flow statement tied to what it looks like about $80 million is that.
Speaker Change: <unk> the key business.
Speaker Change: Yeah, that's a that's accurate that's accurate.
Speaker Change: Okay.
Speaker Change: Thank you for that and.
Speaker Change: No no.
Speaker Change: Peter I think you mentioned on.
Speaker Change: On the off lease side, you had an award back maybe just add a little color to whether that's an incremental share gain or.
Speaker Change: A customer that had left and come back or just a renewal of a customer that had already been with you.
Craig Kennison: Yes, Craig Thank you.
Craig Kennison: It's more a question of a customer that had left and come back we don't we.
Craig Kennison: We don't typically talk about customer wins and losses, but I can recall in a prior earnings call that came up as a question with this specific customer. So it was probably four years ago.
Craig Kennison: That customer left so they've had three years on an alternative platform.
Craig Kennison: This would be your four they ran an RFP late last year. We were successful. So we will be onboarding that customer towards the end of this year. It won't have any real material volume impact in 2025, we want to be clear about that in fact, we.
Craig Kennison: We will incur some costs in the implementation of the process in 2025 and again, that's reflected in our guidance, but the volumes will.
Craig Kennison: Start to show up in 2026 and beyond so I would consider that incremental share at this point, although it was a win back from.
Craig Kennison: From four years ago, let's say.
Speaker Change: Thank you and then Peter just a few moments ago in response to another question you talked about integrating commercial inventory in the dealer platform can you just shed a little more light on.
Craig Kennison: Exactly what that means.
Speaker Change: Yeah.
Speaker Change: Thanks, Craig so.
Speaker Change: Again, the focus here being innovation, making the process easy and how our combined platform as we integrate these digital assets enables us to innovate faster and move faster et cetera. So.
Speaker Change: Let me, let me touch on two sides of that so first of all just over a year ago. When we launched the open lane marketplace brand in the U S.
Speaker Change: That's when we integrated the commercial off lease inventory when it hits the open cycle. Okay. The open part of its lifecycle into the blood.
Speaker Change: But up to that point was the backlog cars marketplace and then we rebranded all of that to openly and that was our open lane launch.
Craig Kennison: So what we've seen since then frankly, Craig first of all we've seen a.
Craig Kennison: Significant increase in the volume of vehicles being purchased by franchise dealers and that's very encouraging. It's also understandable because these off lease vehicles would typically appeal more to a franchise dealer audience.
Craig Kennison: But we've seen strong growth there and continuing growth.
Craig Kennison: In terms of the numbers of franchise dealers that are logging on as buyers in our open lane marketplace.
Craig Kennison: So obviously, that's a positive we want to keep that going.
Craig Kennison: What we launched with one App here just last month.
Craig Kennison: But that did Craig was we when a dealer logs onto the open lane marketplace or the openly an app on their phone.
Craig Kennison: If they are a franchise dealer and they have access to the private labels at let's say they're up.
Craig Kennison: But let's say there are Brent franchise that has that we support their brand and that's obviously the majority of franchise dealers out there.
Craig Kennison: They can find within the App.
Craig Kennison: A seamless single sign on log into their private labor.
Craig Kennison: So to some extent, we're trying to make that app sort of.
Craig Kennison: An anchor point for the dealer.
Craig Kennison: So that they can launch into their private label, but also they can buy cars in the open and of course, they can sell so that was kind of what the thinking behind the one app and that's not alive with their customers and we're excited about that.
Craig Kennison: Hum.
Craig Kennison: So I think I.
Craig Kennison: I hope hopefully that explains it.
Speaker Change: Yes. It does thank you.
Craig Kennison: Yeah.
Speaker Change: We welcome. The next question will be from John Murphy from Bank of America. Please go ahead.
Speaker Change: Good evening everybody.
Craig Kennison: Peter.
Craig Kennison: Peter Ryan when we look at the <unk>.
Craig Kennison: Adjusted EBITDA for 2020 for full year you'd mentioned, the key was 2% to 3%.
Speaker Change: So if you just sort of the mid pointed out you've got about $286 million of EBITDA sort of the base versus the 290 310 are sort of $300 million at the midpoint. So it indicates about 5% organic EBITDA growth.
Speaker Change: Could you just kind of talk about between marketplace and AFC.
Speaker Change: Where you see sort of that growth coming from because it sounds like.
Speaker Change: From a volume perspective is going to be some challenges.
Speaker Change: And without that volume you know AMC might not actually see that much loan growth. So just just curious between the two segments, where you think that 5% EBITDA growth will come from and how it will be generated.
Speaker Change: Yeah.
Speaker Change: Well thanks, John So let me let me comment first of all on the guidance at a sort of a high level, then I'll get a little bit more into that.
Speaker Change: The details of your question as well so first of all in terms of the guidance overall.
Speaker Change: There are four factors I think of and Brad referenced them I'll just repeat them here in terms of how to think about our guidance. One is the sale of the automotive key business Youre right, 2% to 3% of revenue, 2% to 3% of last year's EBITDA. That's not that's obviously taken out of our guidance you've done that math already.
Speaker Change: I think the strong U S. Dollar has created a little bit of a headwind on some of our Canadian.
Speaker Change: Canadian and European profits, Okay, I don't overstate that but you can do the math on that but theres a little bit of a headwind there reflected in that and then I think the one you mentioned commercial volume headwinds.
Speaker Change: For sure we recognize going in this.
Speaker Change: A year of lower off lease maturities. So that's been reflected and then finally increased investments in the U S. Go to market. We made some investments in late Q2, we added a little addition to that in late Q4, we will have the full year of sort of.
Speaker Change: Carey of those investments through all of 2025.
Speaker Change: Notwithstanding that you know.
We forecast a strong year of increased EBITDA, despite despite that headwind on the commercial side. So I feel really good about that.
Speaker Change: In terms of the contribution I would say most of the incremental dollars in our model.
Speaker Change: On the marketplace side.
Speaker Change: Okay.
Speaker Change: So we'll see how the year plays I was pleasantly.
Speaker Change: So I won't say surprised but I was pleased with the AFC performance, we saw in the fourth quarter, but in terms of our guidance I'd say most of that gain would be on the marketplace side of the business right.
Speaker Change: Okay, and then just a second.
Question.
Speaker Change: You keep talking about sort of changes to the Prada.
Speaker Change: Product in one app.
Speaker Change: And sort of how you are marketing going to market to the customer.
Speaker Change: When you talk about the technology some of it sounds very intuitive and that idea of.
Speaker Change: Baking in the the closed private label auctions into the to the Absolutes, one entry point in one place or landing spot for the dealer it sounds like it's very unique.
Speaker Change: Intuitive it makes a lot of sense, but is there any confusion.
Speaker Change: In the market as you're changing this technology with dealers that are live literally just trying to buy and sell at a wholesale level and then buy buy and sell on the or shall I should say on the on the retail side and is.
Speaker Change: Is there any kind of growing pains as you kind of making these adjustments or are the dealers very receptive and tech savvy, maybe even more so than a dumb auto analyst might be.
Speaker Change: Kind of absorb these things and really leverage the power and in doing so because I mean, it sounds confusing some of it actually sounds very exciting I'm just curious what their attitude is for for really leveraging the tech.
Speaker Change: Yeah, John it's a very good question and.
John Murphy: I guess, here's what I'd say first of all dealers give us high marks on the ease and simplicity of our platform to use like when we talk to our dealers.
John Murphy: A lot of dealers tell us your marketplace from a use perspective, it's my favorite one of all because it's so easy to use so theres a lot of sort of sophistication behind the scenes, we tried to make the experience very easy.
John Murphy: Do we succeed all the time, perhaps not but I think we do pretty well on that front now the downside of that John is theaters. They build a habit of you know the App works like this on the buttons are here and I know how to use it and it's almost second nature. So when you change stuff.
John Murphy: You'll get you'll typically get a range of feedback some maybe early adopters have loved it and some people like.
John Murphy: What just happened so you've got to be careful on that I think were we.
John Murphy: Tried to be very thoughtful about that we've tried to do a b testing, we try to rollout a new feature to a to a smaller audience first and iterate through it and do all those types of things.
John Murphy: So.
John Murphy: Yeah, I think I got to be careful about moving People's cheese I think that's it that's the expression I will say, though.
I mentioned that dealer in the Midwest, who said he'd never heard about open lane until six months ago.
John Murphy: The odd thing about that dealer that dealer had been buying on the private label side of ours for probably over a decade. He just didnt know it was opened up because it was branded as an OEM.
John Murphy: Right and open lane was sort of invisible in that process, but we knew that customer right. So what we're trying to do John with some of these changes in you know enable is kind of bring.
John Murphy: Have these sort of dealers realize oh. This is a company I'm I'm, well aware of them and doing business with them have had a good experience for a long time now I've got the opportunity to sell my wholesale units to them and that's part of our sort of go to market angle as well.
John Murphy: And then just that's helpful. And then just one last question you were talking about dealer to dealer quite a bit which makes sense.
Speaker Change: As a growth area, but I've never really heard you guys draw a line of demarcation of what percentage or what portion is franchise dealer versus independent used car dealers.
Dealers and it sounds like the franchise dealers are a growing part of the pie maybe on the buy and sell side of it I mean is there any any kind of dimension you can give us there on on the growth between the two or how much franchises is driving the growth versus the independents.
Speaker Change: We don't we don't break it out hard and fast Jon, but let's say if they give you a sort of rough rough understanding of it the commercial volume that we sell.
Speaker Change: And most of that most of that volume was purchased by franchise dealers you could say 70 ish percent of the commercial cars we sell.
Speaker Change: Is purchased by franchise dealers within the dealer to dealer market. Most of the volume offered for sale is from franchise dealers and when I say, most 70% to 80%.
Speaker Change: And most of the volume purchased.
Speaker Change: Is purchased by independent dealers and again 70, 80%, that's rough math, but thats Directionally, you know directionally accurate enough for for <unk>.
Speaker Change: To give you an understanding of the business.
Speaker Change: But is there an opportunity on the franchise dealer side to increase that.
Speaker Change: Even potentially even more on the on the buy side of equation.
Speaker Change: Oh on both I mean, there's an opportunity increases on the sell side for sure and obviously, we would hope on the buy side as well, yes, Okay. All right very helpful. Thank you.
Speaker Change: Thank you John.
Speaker Change: And again, if you would like to ask a question. Please press Star then one.
Speaker Change: The next question is from Bret Jordan from Jefferies. Please go ahead.
Bret Jordan: Hey, guys.
Bret Jordan: You can look at Hey, as you look at 25, and I guess with a couple of new entrants in the auction space that used to be.
Primarily salvage and the other.
Bret Jordan: Legacy whole car guys do you see the environment, becoming more competitive I guess from a promotional standpoint or just.
Bret Jordan: The struggle for market share and what's at least on the commercial side sort of cyclically pressured or is the current state of competition sort of what we could expect to be seeing through 'twenty five.
Bret Jordan: Yes, Brett.
Bret Jordan: I don't want comp, we don't want to comment on any one specific competitor.
Bret Jordan: <unk>.
Bret Jordan: I actually don't see it like you see it I actually see it maybe the opposite that the choices are being maybe more clarified for customers.
Bret Jordan: But we'll see but I guess, here's what I would say first of all when I think about our company open Lane I feel really good about the positioning that we have you know I think our positioning actually is better than ever.
Bret Jordan: Both whether it's with commercial sellers are with franchise dealers are independent dealers.
Bret Jordan: And I think that's also reflected not just in our own internal surveys but through.
Bret Jordan: Some third party surveys as well.
Bret Jordan: Asking dealers, who you're most preferred wholesale auctions open lane had been rising the ranks and we've only been in market in the U S. Again with the open Lane brand for 16 months, So I feel good about that.
I feel good about our strategy.
Bret Jordan: Delivering the better marketplace, delivering better technology and improving the customer experience.
Bret Jordan: I think we've got a really strong differentiation on the commercial seller side. You know we are the leader with off lease remarketing 2025 will be a challenge, but those volumes are going to grow in 'twenty six seven and beyond.
Bret Jordan: We're a leader there that's going to be a strong source of differentiation for our company, but also a strong source of volume growth as well.
Bret Jordan: And I feel like our dealer to dealer offering is stronger than it's ever been.
Bret Jordan: You know I think we're getting better outcomes, we're seeing more customers participating.
Bret Jordan: And I think you know again like I said in our remarks earlier, we're a relatively small market share in a big Tam, but we've got a really strong offering.
Bret Jordan: So I think viewed over the long term, we're going to grow our volume and gain share in that category.
Bret Jordan: So listen I'm focused on what we offer.
Bret Jordan:
Bret Jordan: And I'm feeling really good about what we offer vis vis what what competitors might offer at the present time.
Bret Jordan: Okay, and I guess within just from a modeling standpoint, 22 lease originations trough is there any notable quarter that had the least or was it just sort of low lease originations through the year, just given the shortage of DIY.
Bret Jordan: Uh huh.
Bret Jordan: If we looked at the year the quarterly year on year decline in.
Lease originations they were sort of at their Max in Q1, and Q2 of 2022.
Bret Jordan: Okay, and then they started to diminish.
Q3, and four and then they I believe they returned to growth in Q2 of 2023.
Bret Jordan: So we kind of take a roughly three year lag to that.
Bret Jordan: So to think of our maturity profile and then the wildcard in there is if the consumer pay off.
Bret Jordan: Percentage, which has been declining slowly it hasnt declined it's still way higher than it was pre COVID-19.
Bret Jordan: They want to be clear about that but it has been declining modestly if that continues to decline that could.
Bret Jordan: Cause a little acceleration in some of these in some of the pace of return.
Bret Jordan: But I don't want us to place a bet on that at this moment in time.
Bret Jordan: Do tariffs change the consumer pay off if the cost of a new vehicle goes up by $5000 because of.
Bret Jordan: On average because of tariffs does that does that do you think that drives up the underlying use value and creates.
Bret Jordan: A more public.
Bret Jordan: Pardon me.
Speaker Change: Doesn't help to be honest, Brett like I think if new vehicle values go up by X you could probably assume used vehicle values go up by about half of X.
Bret Jordan: The equity off lease equity gap has been narrowing.
Bret Jordan: And that's you know that's leading to some this consumer payoff percentage declining which is what I referenced.
Bret Jordan:
Bret Jordan: But you know that trend might cause a bit of a delay to that I don't think it changes the overall narrative, but it might be it might just push it out to you know.
Bret Jordan: Or something like that.
Bret Jordan: But but yeah, we'll have to see how that plays.
Bret Jordan: Yes.
Speaker Change: You're welcome Brett.
Speaker Change: Ladies and gentlemen. This concludes today's question and answer session I will turn the conference back to Peter Kelly for any closing remarks.
Speaker Change: Well, thank you Chad.
And thank you everybody for your questions.
And your continued interest and support of open Lane as I mentioned during the call I believe we've entered 2025 with positive momentum our marketplace is well positioned for long term sustained growth in both dealer and commercial.
Speaker Change: We have a category, leading finance business and we are continuing to extend our technology advantage on multiple fronts. So I remain very optimistic for openly its future and I look forward to updating you on our progress on our first quarter performance later this spring.
Speaker Change: Thank you everybody have a good evening.
Speaker Change: And thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Right.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Okay.