Q1 2025 OPENLANE Inc Earnings Call
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Speaker Change: Good day, and welcome to the open lanes, 1st quarter, 2025 earnings call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key fall by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touchstone phone.
Jared Harnish: I would now like to turn the conference over to Jared Harnish. Please go ahead.
Jared Harnish: Thank you, operator. Good afternoon, everyone. Welcome to Open Lane's first quarter, 2025 earnings call. With me today are Peter Kelly, CEO of Open Lane and Ryan Miller, Open Lane's Vice President of Finance for the Marketplace Business.
Jared Harnish: Our remarks today include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Jared Harnish: Such forward-looking statements involve risk and other uncertainties that may cause our actual results or performance to differ materially from such statements.
Jared Harnish: Factors that could cause such differences include those discussed in our press release issue today and in our SEC violence.
Jared Harnish: Certain non-GAAP financial measures, as defined under the SEC rules, will be discussed on this call. Reconciliation of gap-to- non-GAAP measures are provided in our earnings material and available in the Investor Relations section of our website.
With that, I'll turn the call over to Peter. Peter?
Peter Kelly: Thank you, Jarred, and good afternoon, everyone. I'm pleased to be here today to share Open Lane's strong results from the first quarter.
Peter Kelly: I'll start with a few highlights, but spend the majority of my time discussing our strategy and our perspectives on the overall market environment, including tariffs.
Peter Kelly: But first, I hope you saw our recent announcement naming Brad Herring as our new Executive Vice President and Chief Financial Officer
Peter Kelly: I look forward to welcoming Brad to our team later this month.
Peter Kelly: Today, the financial portion of our call will be led by Ryan Miller, openly in Vice President of Finance for the Marketplace Business.
Peter Kelly: Turning to the quarter, Open Lane delivered a very strong start to 2025, building on our positive momentum and delivering record performance in many areas, particularly within the marketplace business.
Peter Kelly: It's clear that the Open Lane brand is becoming more differentiated and valued in the eyes of our expanding customer base
Peter Kelly: and the strong scalability characteristics of our asset light digital operating model are increasingly apparent in our financial results.
Peter Kelly: During the first quarter, we grew consolidated revenue by 7% and delivered $83 million in adjusted EBITDA. Both achieved against a prior year that included contributions from the automotive keys business that we divested during the fourth quarter of last year.
We also generated 123 million in cash flow from operations
Peter Kelly: In the marketplace segment, while commercial vehicle volumes were down as expected, we increased our dealer's dealer volumes by 15% year-over-year, the second straight quarter of double-digit growth.
Peter Kelly: This resulted in solid growth in auction fee revenue and adjusted EBITDA [inaudible]
Our finance segment also had a great quarter
Peter Kelly: Growing total loan transaction units, holding the loan loss rate to 1.5%, which is the lowest since Q4 of 2022, an increasing adjusted EBITDA by 15% over the prior year.
Peter Kelly: So in summary, open lane is advancing our strategy with focus and with precision, and producing positive consistent results.
Peter Kelly: And despite the current noise in the market, I remain confident in an open lens positioning for long-term growth and our ability to deliver sustained shareholder value.
Peter Kelly: As a signal of that confidence, the open lane board of directors has replaced our prior $100 million share repurchase authorization with the new larger $250 million authorization that will extend through the end of 2026.
Peter Kelly: With that, let me turn to our strategy and how we are positioning open land for the future.
Peter Kelly: As a reminder, our strategy for growth is anchored in our purpose, which is to make Hulsey really easy so our customers can be more successful.
Peter Kelly: And we're making Hulsey easy by focusing on three enabling priorities.
Peter Kelly: First, by delivering the best marketplace, expanding to more buyers and more sellers and offering the most diverse commercial and eater inventory available.
Peter Kelly: Second, by delivering the best technology, Innovative products and services to help our customers make informed decisions and achieve better outcomes.
Peter Kelly: 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.
So let's start with more detail on the marketplace.
Peter Kelly: While overall volumes were slightly down, this was entirely attributed to the decline in commercial off-least volume that we've discussed during previous calls.
Peter Kelly: The Q1 decline in Offleet's volume was in line with her expectations.
Peter Kelly: And we still anticipate those volumes to recover beginning in 2026
. . . . . .
Peter Kelly: I won't repeat all of my commentary from prior calls, other than to reinforce that open lane remains the cure market leader in the commercial off these space, representing the majority of OEM and financial institution programs across North America.
Peter Kelly: When the commercial volumes return in 2026 and beyond, open lane is best positioned to capture that opportunity given our long-standing custom relationships, our deep system integrations, and the tailwinds generated from continued migrations from physical digital channels.
Peter Kelly: and with newly-souraged nations up for the eighth straight quarter in Q1, this will be another positive tailwind for open lanes longer-term growth opportunity.
. . . . .
Peter Kelly: In Dealer to Dealer, I was very encouraged by our strong results, which were broad-based and included volume growth contributions from the United States, Canada and Europe .
Peter Kelly: This growth was primarily driven by solid gains in new buyer and new seller participation in the marketplace.
Peter Kelly: The investments we've made over the last several years to remote the open land brand attract new buyers and sellers, increase our share, and bring a differentiated offering to the market are purely delivering results.
Peter Kelly: This was particularly true in the U.S. Marketplace where we had the best deuter-steader quarter since the investiture of the U.S. physical auction business.
Peter Kelly: We beat all previous daily, weekly, monthly, and quarterly sales records, recorded the highest number of unique visitors to OpenLane.com, and achieved double digit growth in dealer inspections and listings, total new dealer registrations, and total active buyers and sellers.
Peter Kelly: We also drove double digit sales growth from several of the top major public dealer groups, a testament to our focus and success growing wallet share with the country's largest franchise dealers.
. . . . . .
Peter Kelly: We did see some increased dealer volumes and demand in late March carrying into early Q2 after the tariffs were announced And I'll speak more to that in a few minutes, but I want to stress that Open Lane's strong first quarter performance was defined well before those announcements
An included monthly year-over-year dinner gross throughout the entire quarter.
Peter Kelly: And based on our analysis of industry data for Deeter to Deeter, we outperformed the physical auction industry during this heightened period, as well as for the full quarter. In fact, our year over year Deeter volumes grew at nearly double the rate of the broader industry. [inaudible]
and we gained market share.
Peter Kelly: I think this is very compelling evidence that open lanes advantages in terms of speed, ease, and better outcomes are resonating with customers and gaining traction across our markets.
Peter Kelly: Also, our data indicates that in Q1, approximately 30% of the U.S. dealers of Deeter Market was digital, with 70% still physical, meaning there is potential for significant share gains as more and more of this volume moves to digital where OpenLane is a leader.
Peter Kelly: So, from a marketplace perspective, the TAM, and thereby open lands opportunity, remains very large
Peter Kelly: Ultimately, this scale and diversity of inventory of buyers and sellers will power the future of our marketplace and serve as a core differentiator for open-line.
Peter Kelly: Another core differentiator is our technology, where we focused on making the buying and selling experience faster, smarter, easier, and more transparent for our customers.
Peter Kelly: We are self-funding our innovation agenda and our platform consolidation efforts have enabled a rapid acceleration of new products, features and functionality across all of the open lane.
Peter Kelly: On the last call I spoke to the launch of our one app in the US and I'm pleased to say it is achieving all of its intended goals
Peter Kelly: We are already enrolling crossover private label franchise buyers into an open marketplace to a process that formerly took five to eight days but can now be completed in just minutes.
Peter Kelly: At the same time, our independent buyer base is increasingly purchasing commercial vehicles that slow from the private label sites directly into the open marketplace.
Peter Kelly: We are also very active on the Innovation Front in Canada, our Canadian Open Lane Pro subscription programs for gaining momentum as we enhance them with additional data insights and new exclusive pro-only features
Peter Kelly: These programs increase the stickiness of our marketplace with customers and also expand our revenue streams.
Peter Kelly: And just last week we launched our tariff filter technology that allows Canadian dealers to quickly and easily search, filter and bid on tariff exempt automobiles.
Peter Kelly: And then finally, all of these things combined are helping us deliver an improved customer experience.
Peter Kelly: As I've said before, Open Lane is a digital marketplace in a relationship business and the relationships that our customers have with our people and our products are critical to our long-term success.
Peter Kelly: And I was very pleased to see that in Q1, all open lane transactional NPS scores improved compared to one year ago and now sits squarely in the greats to excellent range across all geographies.
Peter Kelly: Based on these results and on the positive feedback we're getting from dealers, we are continuing to invest in our sales, marketing, call center, logistics, arbitrations and title teams to keep making wholesale easy for our customers.
[inaudible]
Peter Kelly: I'd also like to spend a few moments on AFC, where we posted another very solid quarter growing total loan transaction volumes, reducing SGNA costs, controlling the loan loss raise, and contributing double digit year-on-year growth in adjusted EBITDA.
AFC is a high-performing business with a leading market position [inaudible]
Peter Kelly: It is a broad, loyal customer base, the healthy mix of both fee and interest revenue, and best in class risk management program.
Peter Kelly: and it continues to deliver superior performance on core specialty finance metrics of net interest margin, return on assets and return on equity.
Peter Kelly: But one of the AFC's greatest contributions to Openlane is its synergistic connection with the marketplace .
Strategies we have been advancing over the past several quarters [inaudible]
Peter Kelly: AFC's local presence and trusted reputation with dealers makes it an easy introduction point into the open line marketplace and well positioned to cross-pollinate dealer registrations.
Peter Kelly: Additionally, every time an independent dealer pays off an AFC loan, we have an opportunity to offer them another vehicle for their inventory via the open-air marketplace.
Peter Kelly: So we continue to integrate these two business units and our expanding customer bases to help further accelerate our growth
. . . .
Peter Kelly: So in summary, our Q1 results build on OpenLens' consistent pattern of growth and financial performance. They set new records for overall performance and purely demonstrate the strong scalability characteristics of our asset-like digital model.
Peter Kelly: We are executing well in our strategy and investing in solutions that delight her customers and make Hulsey easy.
Peter Kelly: All of this fuels my optimism for long-term growth in volume, market share and profitability.
Speaker Change: I'd now like to discuss tariffs and their potential impact on the automotive wholesale market.
Peter Kelly: I won't detail the tariff specifically as they have been covered extensively in the press.
Peter Kelly: And I'm not going to speculate too much on the what ifs given the many outstanding questions and unknowns.
Peter Kelly: But I am confident in open lens ability to navigate this uncertainty, and at this point there is nothing we have heard or analyzed that causes us to adjust our 2025 guidance.
Peter Kelly: We were pleased with last week's announcement regarding some degree of tariff relief for automotive manufacturers.
Peter Kelly: We're also mindful that these or other new tariffs could be announced, increased, decreased, paused or rescinded at any time.
Peter Kelly: So we continue to operate on the assumption that some tariffs will remain in effect
Peter Kelly: And we're actively planning for multiple scenarios to ensure that we are prepared for a range of possible outcomes.
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Peter Kelly: Overall, we've viewed the potential impacts of terrorists as a mix of both positives and negatives.
Peter Kelly: On the near term positive side, if demand stays high and prices increase, this could benefit an open lane through higher volumes and fees in the marketplace.
Peter Kelly: and more revenue and interest would lower loan losses than they have seen.
Peter Kelly: However, if North American new car supply is meaningfully disrupted, the longer-term impact on vehicles traded in, new lease originations, and the volatility of used vehicle values could create headwinds for the entire industry.
Peter Kelly: To be clear, these are things that could happen, but for the most part they have not yet happened.
Peter Kelly: So, we are monitoring all of this very closely and in close communication with our customers to understand their approach and to stay true to our purpose of making our customers more successful.
Peter Kelly: For OpenLane, we are operating with discipline, and there are many compelling factors that position us well to continue advancing our strategy for growth, a strategy that is purely resonating with our customers.
Peter Kelly: First, we are more asset light than we were in 2020 without the cost overhang of US physical auctions and with very little depth.
Our platform consolidation work has made us more agile.
Peter Kelly: Our technology is a competitive differentiator and we will continue to invest in innovation.
We are generating very strong cash flows for operations [inaudible]
Peter Kelly: We have a strong management team with the proven ability to do adapt and lead change while keeping our plan, our strategy and our company moving forward.
Peter Kelly: So once again, we are mindful of the increased uncertainty that exists compared to 90 days ago, and we'll need to see what ultimately remains in place.
Peter Kelly: But considering all of these factors and what we know today, we are maintaining our 2025 Adjusted EBITDA guidance of $290 to $310 million.
Peter Kelly: Further details for these guidance metrics are available in our earnings release published earlier today
Peter Kelly: Looking ahead, I remain very confident that Openlane will be able to adapt, react, and succeed in this environment.
Peter Kelly: That confidence and my confidence in open lens ability to invest in growth execute our strategy and deliver shareholder value It's shared by our management team, by our employees and also by our board of directors
Peter Kelly: Again, the board has authorized a $250 million share repurchase authorization that will extend through the end of 2026 as a signal of that confidence.
Ryan Miller: So with that, I'll turn things over to Ryan Miller before we go to Q&A. Ryan?
Ryan Miller: Thank you, Peter, and good afternoon everyone. I appreciate you joining the call today and the opportunity to speak with all of you.
Ryan Miller: Open Lane delivered another strong quarter by executing on the fundamentals of our business, focusing on our customers and advancing our strategy for growth.
Ryan Miller: Our results reflect the output of strategic investments we've made in both people and technology and clearly evidence the underlying strength of our asset-like digital business model.
Ryan Miller: Before I begin, my comments will be on a first quarter year-of-year basis unless I state otherwise.
Ryan Miller: Before comparability purposes, please recall that prior year results include the Automotive Keys business, which was divested as in Q4 of 2024. As previously disclosed, this business represented two to three percent of prior year revenue and adjust the diva dot.
Ryan Miller: Consequently, our reported year-of-year growth rates understate the underlying performance of our continuing operation.
Ryan Miller: Moving to Consolidated Results, Revenue was 460 million, up 7%. The fourth consecutive quarter of year-over-year top-line growth, reflecting the continued momentum across both the Open County Marketplace and ASC Finance segments.
Ryan Miller: Total cost of services was 242 million, up 13%, primarily due to increased marketplace dealer volumes and makeshift.
[inaudible]
Ryan Miller: Consolidated SGNA for the quarter was 107 of them, essentially flat year over year.
Ryan Miller: This reflects the successful execution of enterprise cost savings initiatives and includes the incremental technology and go-to-market investments made throughout 2024 and into 2025.
Ryan Miller: We are very pleased to see that our revenue growth is outpacing our SG&A growth.
Ryan Miller: and we continue leaning on our culture of cost discipline to create the financial headroom for further investments in technology, innovation and growth.
Ryan Miller: Together, these factors combined drove consolidated adjusted EBITDA to 83 million, an 11% increase over the prior year. This improvement reflects the operating leverage and scalability characteristics inherent in our digital business.
Ryan Miller: our expanding customer base and the differentiated products and services is openly and offers for its customers.
Ryan Miller: Turning to the marketplace segment, total volumes were down 2%, driven entirely by a 14% decrease in commercial volumes.
Ryan Miller: That decline was largely offset by double-digit growth in the dealer volumes which increased 15% during the quarter.
Peter Kelly: As Peter mentioned earlier, the commercial decline was directly in line with our expectations when we remain well positioned to capture the opportunity of increased off-least return volumes in 2026 in the out.
Peter Kelly: On the dealer side, our growth was fueled by the go-to-market investments we have discussed on previous calls, namely, additional sales and customer support rules, as well as expanded marketing capabilities.
Peter Kelly: I also want to point out that our volume growth included positive contributions from the United States, Canada and Europe .
Peter Kelly: This volume growth drove a marketplace revenue increase of 10% to 351 million.
Peter Kelly: Auction fee revenue increased by 14%, driven by salesmen and auction fee price increases.
Peter Kelly: First profit was up 7% due to strategic pricing actions, product mix, and productivity initiatives.
Peter Kelly: The marketplace SGNA increased by 2% driven by incremental go-to-market investments in the first quarter [inaudible]
Peter Kelly: All of this led to a marketplace adjustment of 37, no, 6% increase.
Peter Kelly: Excluding the divested, automotive key business, marketplace adjusted EBITDA would have increased 12 percent.
Peter Kelly: As Peter stated, we are very pleased with the ongoing strength and continued growth in our marketplace business [inaudible]
Peter Kelly: Our dealer business is highly differentiated, offering a better, faster, higher-value solution at a lower cost, and this has helped drive an expansion than our franchise and independent buyer and seller base.
Peter Kelly: And this, combined with the diversity of our inventory, our deep pipeline of innovation, and our leading marketplace technology, positions us well for continuing profitable growth.
. . . . . .
Turning to our final segment
Peter Kelly: Floor plan origination volumes were stable year over year, while floor plan curtailments increased 6% and total loan transactions increased by 2%.
Peter Kelly: The resulting finance segment revenues were down 2%, primarily due to lower interest rates in the first quarter.
Peter Kelly: The net finance margin was 81 million, reflecting an annualized yield of 13.9% up to 10 basis points.
Peter Kelly: And we are pleased with the success and completion of several strategic cost initiatives which will help decrease S-tune by 10%.
Peter Kelly: From a risk management perspective, we are very pleased with the first quarter provision for credit losses of 1.5 percent, reflecting our industry-leading proprietary risk management capability.
Peter Kelly: We continue to target a long-term loss rate of 1.5% to 2% and we expect the second quarter to be consistent with that target.
Peter Kelly: All of the factors I've discussed led to a very strong order for the finance business, which contributed 46 million in adjusted EBITDA, an impressive 15% increase over the prior year.
Peter Kelly: Looking ahead, AFC remains a robust, high-performing business and a key strategic asset to the opening. It provides dealer liquidity in our marketplace and enhances customer loyalty.
Peter Kelly: It generates superior results in terms of net interest margin, return on assets, and return on equity, and we are advancing multiple strategies to further connect and engage with our marketplace customers through AFC.
Moving on to the balance sheet and capital allocation,
Peter Kelly: Strong Cash Generation is an important and differentiating attribute of the Othelaine business, and this was evident again in Q1. In the quarter, we generated approximately 123 million of cash flow from operations, and our consolidated net leverage is near zero.
Peter Kelly: This level of cash generation demonstrates the powerful combination of a marketplace and
Peter Kelly: Overall, the core of our Capital Allocation Framework remains the same. We continue to prioritize funding of organic investments while ensuring flexibility for both high-return, complementary, sturdy, strategic opportunities and shareholder returns.
Peter Kelly: Our cop acts and best ones are funded to do cash generated by the business and are expected to be in line with prior year.
Peter Kelly: As mentioned on prior calls, we remain on track to repay the $210 million of senior notes due in June of this year, utilizing cash flow from operations and available liquidity.
Peter Kelly: In addition, as Peter mentioned, the board has approved a new $250 million share repurchase program through 2026, replacing the $100 million program expiring later this year.
Our philosophy on sherry purchases will remain principal and opportunistic [inaudible]
Peter Kelly: Summarize the many high points of the first quarter results, dealer volumes grew by 15% in the second quarter, the second street quarter of double digit growth.
Peter Kelly: Consolidated Adjusted EBITDA grew 11% with strong contributions from both our marketplace and finance segments.
Peter Kelly: AFC continues to be a major contributor to our overall financial performance and is an enabling connector for the marketplace business.
Peter Kelly: Openline continued its consistent track practice of strong cash generation during the quarter, delivering $123 million of cash flow from operations.
[inaudible]
Peter Kelly: We believe our strong performance in the first quarter reinforces the soundness of our strategy, the value we deliver to our customers, and the strong scalability characteristics of our digital operating model.
Peter Kelly: As the dealer industry increasingly transports digital, and as the Office volumes return in 2026 and beyond, open line is well positioned to continue delivering growth and shareholder value.
Peter Kelly: With that, I will turn the call over to the operator for questions.
Speaker Change: 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.
Peter Kelly: If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then to. At this time, we will pause momentarily to assemble our roster.
Peter Kelly: And your first question today will come from Craig Kennison with Barrett. Please go ahead.
Craig Kennison: Hey, thank you. A question just on the current dynamic with respect to tariffs and the used environment. Have you seen any pull forward in activity at auction or among your dealer partners as the results of customers trying to get ahead of price increases?
Speaker Change: Yeah, thank you Craig for that question. I guess the key thing I want to leave you with with that question is that the strong performance in Q1 was well in place and locked in place.
Speaker Change: Well ahead of any pull ahead. We did see increased activity at the retail level. It's been reported in the press. I would say starting like the 20th of March, something like that the last 10 days of the quarter and extending into April . So, we're going to do a little bit more, but we're going to do a little bit more.
Speaker Change: So that is true, and that was an added benefit. I would say Craig, that was incremental to the broader story. The broader story is this was a very strong quarter.
Speaker Change: You know, where we grew our dealer business, 15% organically, year on year, growing the setter base, the buyer base, the vehicle's list, and the vehicle's sold all by double digit volumes.
Speaker Change: setting new records, etc. So very strong performance in D to D. I think a strong performance in commercial as well, although volumes were down, that was well telegraphed and well communicated for the past number of earnings calls, that's a known fact, so those volumes were very much in line.
Speaker Change: And then a strong performance on the finance business. So, you know, three strong pillars to this business, all I think performed well in Q1. I'd say the pull ahead that's been reported with a slight added benefit late in the day, but you know very much incremental to the overall story of the quarter. [inaudible]
Speaker Change: Thanks, and with respect to that dealer volume growth, I think 15 percent, to what extent do you attribute that to better awareness of openly, and I think you've been under the open lane brand as a unified brand for about two years now and I'm curious whether you start to feel some traction there.
Speaker Change: Yeah, thanks, Craig. Listen, I think you're hitting on an important point. I think it's multi-faceted, but I think that's one key point. I think the combination of the platforms.
Speaker Change: One brand, simplifies the equation for the customer, consolidating the marketplace with commercial
Speaker Change: Dealer Inventory creates a unique mix of inventory on this marketplace that no other operator has of high value compelling vehicles for a broad universe of buyers
Speaker Change: So, I think that's part of it. As you know, we also made investments in the middle of last year, where we sort of increased our go-to-market investments particularly in the US and we're seeing that those pay off. So, I guess when I look at that dealer business,
Speaker Change: Again, 15% organic growth in dealer volumes, that's our second consecutive quarter back-to-back where we've had, you know, double digit growth or basically the same growth level. We believe we're gaining share.
Okay, we believe we're outperforming other parts of the industry of the industry.
Speaker Change: We're growing with major dealers, some of the biggest dealers choosing Open Lane, so that's great to see And again, I think if we look at this big picture overall, this digital dealer to the dealer market is still
Speaker Change: I would say 30% or less of the overall dealer market.
70% of Dieter volume is still physical. [inaudible]
Speaker Change: Although the digital section is taking a little bit more share every year that goes by and obviously we're benefiting from that. So I think we're one of the drivers of that as well. So listen, we're pleased with the results. We're pleased with the strategy. We're pleased with the execution. We're going to keep executing. We're pleased with the execution.
Speaker Change: Hopefully, at this same high level and keep trying to drive that secular shift and as customers become more and more aware of what we offer, I think the more they like it.
That's helpful. Thank you
Thanks, Greg.
Speaker Change: And your next question today will come from Rajat Gupta with JP Morgan. Please go ahead.
Speaker Change: Hey, great. Thanks for taking the question. I just had one first one on Canada.
Can you give us a sense of, you know, what person-gauge [inaudible]
Speaker Change: on your platform in Canada or just the industry overall, how many of those wake-olds or what percentage typically then get exported to the U.S.
Speaker Change: And just how do you think you navigate the impact to the industry from that deal in this new Jennifer gene? Those are my first questions and just have a quick follow up on ASU.
Speaker Change: Great, thanks for the shot. I'll attempt to answer that here. It's a good question.
Speaker Change: Obviously, Canada is an important market for us. We don't disclose US versus Canada volumes, but you know Canada is an important market for us, where the market leader up there in commercial and in dealer.
Speaker Change: It's an important part of our business and performance in Canada was strong in Q1 as well. As I said, we were strong in all our geographies in Q1. So
and Ben Canada,
Speaker Change: I would say, you know, a meaningful percentage, but it's certainly less than 20% and in most periods it's less than 15% of the volume we sell we believe is purchased by exporters who then import those use vehicles into the US.
Speaker Change: So, to put a wide range on it, Rajat 10-20% in most quarters and sometimes that activity drives up and it drops below that but that's kind of typical.
Speaker Change: But, you know, we've analyzed this quite carefully. So, a few things are interesting to me. One is if we look at new car retail sales in Canada about half of those are built in the US.
Speaker Change: Okay? And if we look at the majority, and I'm talking about the significant majority of vehicles that have been exported from Canada into the U.S.
Speaker Change: They're a vehicle that originally built in the US and you can tell that by the then. So they're not subject to these tariffs.
Speaker Change: So we've had pretty active open discussions with some of our big customers who operate in this business.
Speaker Change: You know, their volumes are strong, they continue to be strong. I mentioned in my remarks we've built a tariff filter. That's to enable buyers in our Canadian market to quickly say what vehicles are not subject to tariffs. So...
Speaker Change: I guess that's a kind of a long way of saying Rajat is something we're paying attention to but it looks like the majority of vehicles that are currently being exported are not and will be not subject to tariffs and this business at least today continues at its sort of normal robust pace
Speaker Change: Anderson, that's how we'll call her. And just a second question, what I'm AFC?
Speaker Change: I was surprised to see that the sharp drop in provisioning there, I'm just curious what happened.
Speaker Change: It's just like a new level going forward, is there any one time stuff that influences that because it's a pretty strong number there. So any thoughts on the cadence outlook there would be helpful.
Speaker Change: Yeah, thanks, Risha. Listen, AFC had a very good quarter. I was very pleased with the results volume growth, strong revenue performance, albeit a slight decline in revenue that really driven by where interest rates are at relative to a year ago.
Speaker Change: and then very strong risk management that delivered the overall result. I guess, Rajat, if you look at the risk management stats over the last, I don't know, four quarters, they have been steadily improving.
Speaker Change: So, I think, you know, Q1 was just another data point along that curve, although the improvement relative to Q4 was quite strong, so we were pleased with that.
Speaker Change: Well, I put it down to listen. I think AFC has the industry leading risk management kind of
Speaker Change: Approach, I believe, in the industry. And also, I'd say generally in an environment where you use vehicle prices are not depreciating or are appreciating, that typically reduces the risk at AFC a little bit. You know?
Speaker Change: We're in the one and a half to two percent range. That's the range we typically target the business to be in, so I don't really expect it to be below that range for any sort of significant period of time. We were targeted being in that range for 2025 overall.
Speaker Change: and likely for the coming a few quarters. Ryan, is there anything you want to add to that? No, I think that's correct. Yeah, okay. So I think we feel good about the one that you have to 2% range, Rajat.
Awesome. Great. Thanks for all the color. I'm good luck.
Thank you, Regal.
Speaker Change: Your next question today will come from Bob Labick with CJS Securities. Please go ahead.
Speaker Change: Hi, this is Willan for Bob. Can you add some color to the key measures you're taking to gain share independent industry volumes? Are you continuing to add to the sales forces that, you know, on pause with tariffs?
[inaudible]
Well, thank you, Will, for that.
Speaker Change: Slith and again, pleased with the outcomes we're seeing, and I think the investments we made in the middle of last year were a contributing factor to that. I don't think they were the only factor. I think there's other factors as well, but the combination has been...
Speaker Change: had been very positive. Obviously we're a very data driven company so when we make new investments we track how those investments are performing.
Speaker Change: So we've got more robust, we've got another 90 days of data.
Against these new investments at this point. Listen, I feel-
Really good. About what we've seen. [inaudible]
Speaker Change: I would argue that those investments are not even yet fully up to speed in terms of what they're ultimately capable of, but they're clearly well along that journey at this point. And in terms of making further investments listen, that's something we're looking at.
Speaker Change: You know, the dealer to dealer business is one, in my view, one of three important pillars to the overall profitability story at Openlane. We've got a dealer to dealer business where there's an opportunity to move an industry that's heavily physical into a more digital direction where we're a market leader.
Speaker Change: So we're investing in that and showing, I think, very good outcomes there. So I think we will continue to make appropriate investments and I'm not going to be held back by tariffs to be honest with you. We'll be prudent. We'll look at the right investment for the environment we're in. But then in addition to that, we've got the commercial business.
Again, 2025 is a law point
Speaker Change: We're confident volumes will increase in 2026 and 2027. That has been and will be a great business for this company. We're a market leader there. And then we've got the finance business, which again just had an extra quarter and has excellent prospects as well. So listen, I think if you look across the board here this company.
Speaker Change: I think we're making the right investments. I think we're executing well. I think we're measuring those investments and the outcomes and we'll continue to do that across all these three parts of our business.
. . . . .
Speaker Change: Thank you, and then just one more. Can you add some color to the key learnings from the single platform all police and dealer car auctions on open line?
Yeah, we'll...
Speaker Change: Very good question. You know, some of that I think is...
Speaker Change: anecdotal, and somebody is sort of maybe a little harder to measure, but to the extent we do try to measure it, you know, what can we observe? Well, since we did the combination, we've seen accelerated growth on our D2D. Now there's some other investments you made alongside, so it's hard to sort of separate which we'll which we've seen a re-NPS scores go up.
Speaker Change: You know, I feel really good about that. Sorry, not E-N-P-S, N-P-S, customer N-P-S.
Speaker Change: Scores go up. I feel really good about that because that's a way of measuring, are we performing against our purpose statement? Are we making holes so easy? Are we making our customers more successful? And our customers are telling us, yes you are.
So...
Speaker Change: I think that's very positive. And then, you know, things like brand awareness. You know, do customers recognize the brand? Have they heard about Openlane? Are we getting that sort of referral customer who's coming to us? And we're seeing increased evidence of all of that. And frankly, I talked about these NPS surveys. I'm increasingly seeing commentary in those surveys of dealers telling us, Openlane is my preferred marketplace. And I think that's very positive. I think that's very positive. I think that's very positive.
Speaker Change: The way you guys do it is easy, it's the best way, I like it, I want to buy more cars here And that's very gratifying to me and obviously our team sees those types of feedback as well So I think listen, the platform call solidation is an important contributing factor I love the brand we have, I love the simplicity of the brand, it has unified our team [inaudible]
Speaker Change: I think we're all passionate about what we do here at this company and we're excited for the future of open light.
Thank you.
Speaker Change: And your next question today will come from Jeff Lick with Stevens. Please go ahead.
Speaker Change: Good afternoon guys, thanks very much for taking my question and congrats on a great quarter.
Speaker Change: I just want to just hope we could drill down a little bit on the auction fees per vehicle sold. There's, you know, a strong increase there. I know you've got some pricing that was in Canada and, you know, you're also the local's provider. So if you just talk about the pricing environment and what's driving me, yeah.
You know the fee per unit that would be helpful
Speaker Change: Thanks, Jeff. Hey, I appreciate those comments, and I'll try to answer your question here.
Speaker Change: You know, you mentioned OpenLanes the low cost provider. Here's the way I like to think about it. I think OpenLanes is a high quality provider. We provide excellent outcomes for customers and we do that at a reasonable price.
Speaker Change: You know, so I think we're sort of very much on the sort of cost quality frontier in terms of offering a superior excellent sort of technology digitally driven out, you know, service and outcome at a very reasonable price. That's kind of how I think about it.
Speaker Change: And I do think, you know, big picture we have pricing opportunity in this business, but I also think we're focused on growing our volumes and growing our share. And I think we saw evidence of all of that in Q1.
So to get into the specifics [inaudible]
Speaker Change: Listen, we did see I think 14% growth in auction fee revenue, so maybe that's where pricing is shown up the most. I feel good about that.
Speaker Change: There was a pricing increase in Canada, Jeff, we did a relatively modest one, we did it at the beginning of the quarter. I think that is delivering all of its intended outcomes.
Speaker Change: You know, so we didn't see any erosion or loss from that so that's been effective but also what I'm really happy to see in Canada as their NPS scores went up
Speaker Change: Right, so the increase in pricing wasn't a negative in any of the sort of customer perception or the relationship we have with our customers.
So, we did that in Canada.
Speaker Change: I guess what I'd say overall, Jeff, is I like how we're positioned for a price perspective.
Speaker Change: Dealer's recognized that our fees are very reasonable in an environment where not all of their providers would have the same reasonable fees, let's say. And I think we have opportunity over time. So I think we're well positioned there. The pricing, I would say, is
Speaker Change: A lever, a future growth, but it's not going to be the most important lever. You know, the other levers would be, obviously, volume, I think is the important one, volume and share pricing and then cost management and the scalability of the platform, which obviously, I think the digital platform has that in space as well.
Speaker Change: Well, I certainly didn't mean to imply by saying you're the local health provider that you were the local quality provider. I was just more implying that there's a gap there that we could.
Speaker Change: Close a little bit in terms of pricing if you wanted and just follow up on the service revenue. I'm assuming that that's perhaps a little more tied to the commercial units because you know that was down as any color you could add there.
Speaker Change: Yeah, I appreciate that comment as well by the way. And I didn't mean to imply that you did that. I was just trying to clarify how I see it.
Speaker Change: The biggest driver of the service volume decline, service revenue decline, was the divesture of the keys business
Speaker Change: Okay, so the key business was two to three percent of revenue and two to three percent of EBITDA last year, but all of that is reported within the marketplace segment.
Speaker Change: So if you think of it as how much a component of Marketplace revenue and Marketplace-y but was it last year, obviously it was a higher percentage we haven't disclosed the specifics but that was the biggest single driver. The second item you mentioned, the item you mentioned would probably be the number two item, which was...
Speaker Change: As commercial volumes went down, that meant there were fewer off-least vehicles inspected and there were fewer off-least vehicles delivered and those are drivers of service revenue as well.
Speaker Change: So, the keys business was item number one, the item you mentioned was item number two [inaudible]
Great, well, congratulations and I'll get back in the queue.
Thank you, Jeff.
Speaker Change: And your next question today will come from Bret Jordan with Jeffries, please go ahead.
Hey, good evening guys.
Speaker Change: Hey, I'm Robert. I'm the discussion of pricing. I think you mentioned auction fee revenues were up 14% and gross profit you said was up 7% and I think in the preparatory remarks you mentioned pricing investment and attached to that delta and you had a price increase in Canada. Was there a price?
Speaker Change: Was pricing the driver of the share game in any way or is pricing getting becoming more competitive at all?
Yeah, thanks, Bret.
Speaker Change: We didn't make any change in our pricing in the US market in the quarter, but we did it with our pricing in the US market in I think the fourth quarter certainly the latter part of last year I think it was the fourth quarter. Yeah, it was the fourth quarter. So that pricing increase in Q4 would have
Speaker Change: You know, flowed into Q1 and been a year-over-year boost to the auction revenue growth. So, if I was to look at the US D to D market in Q1, volume grew, so we had healthy volume growth.
Speaker Change: Revenue per unit also grew, right? Now, we also had some incremental investments against that, you know, the investments we made in sort of Q2, Q3 of last year, which were offset, you know, by some other efficiencies in other parts of the business. So that was kind of the equation around that. But, but, um,
Speaker Change: Listen, I think healthy volume growth, we believe we're gaining growing volume organically, growing our share.
Speaker Change: Growing our Dieter Bay, not only the volume, but also maybe more important to me is number of active sellers, number of active buyers, and then obviously improving the E and PS and the customer experience as well was important.
Speaker Change: Does that increase the turn of youth vehicles, is that where he is competing for this for inventory?
Yeah, it's a good question, Bret, and-
Speaker Change: I don't think we're looking at a 2022-like situation. I think all these situations are different, but there are some...
Speaker Change: You know, relative to demand. If either lots are relatively full
Speaker Change: Then, when they get trade-ins associated with selling a new retail car,
They're likely to wholesale a decent percentage of those trade-ins [inaudible]
Speaker Change: Right? If their new car lot is relatively empty, then they're going to look at all those empty spaces and say, man, I need to start beefing up my used car business.
Right? So...
Speaker Change: You know, I think we've got a sort of look at that. We did see because of the sort of, you know, pull ahead and retail that we saw in the last 10 days of March and the first
Speaker Change: Two weeks of April , I do believe inventory at dealers lots declined a little bit, but I think it was sort of relatively modest from like I think I saw 55 days supply down to 51 or something like that and don't quote me on those numbers, but I think it's you know of that order.
Speaker Change: But that's one thing I would look at is, you know, how... [inaudible]
Speaker Change: What is the total volume of new car sales? How relatively full are Deeter's lots? And that will tend to drive how many vehicles they committed to the wholesale channel.
Brad, thank you.
Speaker Change: This includes our question and answer session. I would like to turn the conference back over to Peter Kelly for any closing remarks.
Peter Kelly: Well, thank you, Nick, and thank you to everybody on the call for being with us here today and for your interest in our company. Again, as I look ahead, I think Open Lane is very well positioned to navigate the current environment, advance our strategy for growth, and deliver sustained shareholder value.
Peter Kelly: As we look at the Q-run results, I think it's clear that our marketplace and finance business are executing very well, generating very strong cash flows, and we've got this company in a situation where we've got very little debt at this point.
Peter Kelly: As a product of all we know about the industry and our performance, we are maintaining our 2025 guidance [inaudible]
Peter Kelly: And we're also spoke to the new peer repurchase authorization, the upsizing of that to $250 million I look forward to updating you all on open lane strategy innovation and performance again on our next quarters call in about 90 days from now. Thank you all have a great evening.
Speaker Change: Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.