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KAR KAR Auction Services

Participants
Mike Eliason Investor Relations
Jim Hallett Chief Executive Officer
Eric Loughmiller Executive Vice President and Chief Financial Officer
John Murphy Bank of America
Rajat Gupta JPMorgan
Craig Kennison Baird
Stephanie Benjamin Truist
Daniel Imbro Stephens
Bob Labick CJS Securities
Bret Jordan Jefferies
Gary Prestopino Barrington Research
Call transcript
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Operator

Ladies and gentlemen, thank you for standing by and welcome to the KAR Auction Services, Inc. Q3 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to hand the conference over to your speaker for today, Mike Eliason.

You may begin.

Mike Eliason

Wanda. Thanks, thank quarter us XXXX and KAR for for third Global earnings you morning today joining the Good conference call. discuss ended will for we the of performance Today, KAR the quarter September XXXX. XX, financial Global commentary, our concluding questions from we After participants. take will

such I Harbor our that involve call Private Act Litigation provision statements of kicks forward-looking to meaning the of conference like are Reform discussion, the Jim remind would XXXX. cautioned Before of contains within off you this the that Investors uncertainties operations Safe Securities business, such in and statements expressly prospects obligation update and providing risks detailed disclaims KAR’s forward-looking may affect company to In these risks that fully statements, filings. results and our statements. the any forward-looking of SEC are

conference this is yesterday, call, financial in the be Relations section throughout that the we of and be applicable can release both financial mention issued in also Reconciliations GAAP that me website. measures. which measures referencing the non-GAAP found our Investor also press the available GAAP of non-GAAP to measure will financial Let we

KAR Now, to this to CEO, Jim turn call over Jim? I’d Hallett. like Global’s

Jim Hallett

in to a the that into just – and direction, last Thank is opportunity of what a has decided believe been we’re our you, swift good and start embrace couple selling in of we have business business to ladies quarter, prior XXX% good decisions Welcome of down little that and transformation were a take seeing year. We able a model revenue And and and our a transformation over different cost results we’ve clear took I were industry. years unique structure. the to six The although operating created been digital Michael, future really to we call. our digital the today digital I through would This we model, accelerate that I ago, very our transformation now bit us over volume morning took. prospects I one to a than our action reduction the We the our third on of this months the is COVID that the fully had advantage leading the we move a year this to past with rapidly we’re Thought positive marketplaces. crisis dealing gentlemen. we we crisis. changes and of was am our those reflecting encouraged COVID for opportunity business transforming very provided from me are believe in business permanent a that our our It to of by business. and

topics Before detail, let I into the review cover the I this that to me morning. get plan

highlights our structure in the I want the expected be. performance cost of provide to I how the in First, to dealer-to-dealer want our review being third growth addressing marketplace changes an size around few I next this results give believe of an idea years. incremental impact our the over accelerate this I we channel. BacklotCars why could this will the and space want have on acquisition the to also in permanent will some give including in of our color to TradeRev. you the quantify digital quarter, you dealer-to-dealer some acquisition on the are and we believe growth update

we situation industry impacting As see the for our talk – And of excuse term. marketplace investment in provide is After capital last, position in done balance in our strong provide PWI to on me. the want my CarLotz, the I near review plans for in the I well, want deploying remarks, to BacklotCars with information am to divestiture will ask our that supply about dealer sheet and I volumes. of behavior a Eric I our and wholesale what and

our reviewing quarter by third So, let performance. start me

the operations. saw As We sold international We TradeRev. revenue in from than and in sold saw in declines growth afternoon, our prior American the less our volumes and at in facilities XX X% we sold year. release OPENLANE saw volume down XX% as you volumes was saw our yesterday North

auction year-over-year. volumes did Although we quarter revenue services can structure unit seen except fee we on-premise our in cost marketplaces, made our both that the financial and third revenue one results. declined, off-premise changes services of per every OPENLANE. experienced services increases in digital We in have in see ancillary be decline The

able gross to last direct gross from Most transactions. our year. the believe XX.X% a execute in profit revenue of increase result the cost as the to to is in going processes of a reducing percentage to and This XXX that’s we’re are points labor First, forward. We experienced costs revenue, model. reduction a basis importantly, the in quarter of committed marketplace we direct digital third sustainable are up changes

Gross to previously, compared revenue As XX% discussed measure, prior profit we profit. using revenue net we as business XX% top-line of managed gross net our year. was key the the

to of a our the and in labor, direct absolute percent revenue. we as addition also reduced In dollars in have reduction SG&A

return we focused our cost marketplaces. the now but in to cost pandemic, just during our due faced and recognize structure management not digital volumes to team, rightsizing model a and the this when conditions unique We normal revenues right revenues volumes on sustain are the are to challenge reducing levels. lower the business As match when operating the organization lower this is to we

these committed stick. are We making to savings fully

to parts to legacy business. physical to us to resources digital support expenses needed auction more As these committing we financial future, our see the our marketplaces other the reducing while of including offsetting look of operate the business, technology I by costs

experienced strongest and that the retail gradually then than decline. strong most quarter quarter lower supply a third despite our and in activity the through relatively of recognizing normal third strong steadily July, saw We were for quarter environment. saw results Our we volumes

go dealer-to-dealer me on space. our efforts the let more detail in So, into digital

rate. up month XX% volumes the quarter in we First, TradeRev each with were growth grow have an and TradeRev accelerate. started improved seen volume third to showing

TradeRev done in I losses traction XX%. like space over growth the would the TradeRev. attribute this business. just I the September And we incurring rate are was that performance what improved seeing to do without are Our getting of in we and on this

First, platform the we have U.S. in simplified the

We we’ve app to listened to customers our made the quickly to when cage match, TradeRev have know eliminated buyers the and and use, we’ve it easier for the changes to won make have making they car. easier

the to that this the in have Secondly, accelerated bringing believe this buyer long of no space buying made we the continue is online. We dealer-to-dealer we to vehicles at the which There doubt pandemic is in to the the all dealers site. base. TradeRev visibility winning build our And customers our pace run. logging last, into enhancing the has into strides marketplace inventory that ADESA the on by platforms adesa.com are when key

our this we seeing Without our accelerate need well. to as this a as to are We space. well numbers as in publishing doubt, volumes win are the competitors efforts our

close So, or Well, of in Many this next you. reason for that investors so. of is questioned me week plan we have the our the the opportunity the are million. $XXX transaction size We price BacklotCars. let the to acquiring purchase

served vehicles the grow forward. going digital years, we from believe the analyzed several transactions by as auction that see market much the wholesale historically, million next dealer-to-dealer we addressable industry may the our we XX dealer-to-dealer typical million to X over marketplace, As as

years. the by annual opportunity for expected in we the the ultimate acquisition the we of same As the that that We be opportunity competition KAR, EBITDA within that adjusted increase With than is greater close in even $XXX the year years. next million it the from believe believe BacklotCars we the XX next contribution period. could This our addition critical we gap to over over four the the will size per on space. said, that this TradeRev is space dealer-to-dealer in that over

each Looking these the currently we the presence opportunity opportunity in at serve. many I of BacklotCars of to adjoining a markets in they buyer basis companies TradeRev, markets. each and advantage In cases, combined to their strength real expand have see take see of platform. that

going to the combination know that BacklotCars, and growing combined our digital U.S., than plan the dealer-to-dealer together. more businesses doubled fastest a expect industry. on we we in structure marketplace we and of also putting plan creates a TradeRev We of the quickly have detailed the have and is reduce working What these integration to should synergies a number begun forward, and cost in businesses in volume today of move the

short cash U.S. And satisfied We marketplace in are and to the digital not with profitable being BacklotCars leader be of integrate flow committed in positive being the anything we in once dealer-to-dealer we will TradeRev. the

leading TradeRev established already have We as platform in Canada. the

from come all ADESA increased fact, investment for TradeRev in more The over dealer-to-dealer ROI this will on marketplace. is where vehicles dealer-to-dealer digital now Canada, in account profits businesses KAR’s of than In transactions. wholesale XX% selling the the

including the U.S. be up that the in challenge, leadership BacklotCars instrumental signed all are We for team success to this our will

little let overall Now, a used me about vehicles. supply and demand talk situation bit the for

shutdown April of retail in of see we to April March, and and very us buildup have activity. the car used May economy, pre-COVID seen early experienced the Following wholesale opportunity July. robust we of June inventory The levels transactions gave in

with should a I been supply have June used marketplace. in since faced the wholesale or since – shortage we say, of However, July car

cover segment. me by Let this segment

and taking our of have on the grounding many transactions vehicles place No fair share of dealer off-lease led the the shortage we transactions has get but the these to the inventory levels, normal to First, dealer platform. question, returned lessors. of between OPENLANE grounding

where to of very funnel physical However, limiting locations, this services is channel. disintermediate low number through enhance of we the their high dealers vehicles has vehicles. transaction the revenue value the wholesale the record per led of provide can and value-added wholesale to demand to and off-lease the our marketplace way is The in motivates wholesale the that to the shortage strong vehicles working prices the

into years. visibility the and supply channel, for the next vehicles expect strong three great have of We a we off-lease

not Turning have of as off-lease to years. vehicles be our as repossessions, volumes repo some in will much case industry made XXXX. That in up the volumes

volumes held include and to a the COVID. of inventory strong due levels in in July up our at got level repos large led number Our facilities that June to March pre-COVID that

and have We and leases, to defaults have loans vehicles yet. not with a on seen have delinquencies They vehicles begun levels They in repo have increase the recently auto activity normal and repossessing have met those to they several able vehicles and repossess XXXX. they recovery return normal supply our not not in year. many but that acknowledged seen have expect been in this to I sold at commercial largest yet states. consignors repo of off

repo XX% XXXX. volumes our XX% in to industry be in expect to up We

is repo-related customers another are our fleets smallest received preparing source are a number This could a KAR, XXXX a and has but to of great of supply that wholesale wholesale Rental of transactions opportunity of high very Our also that car at for segment XXXX. in attention catch lead to up lot in recently. supply us.

taking that digital that broad this to We a tied We have are multiple and half companies the of and allows The second large XXXX. car prices for us value in to companies wholesale allows are platform reduce expect specific that a sale being the car of car likely interested not to segment in XXXX are in Rental buyers, we rental vehicles of geography a locations additional used consigners to to our vehicles they the buyers deflating do size aggressively is smaller and not type as rental of is vehicle to contribute beyond from companies vehicles companies this of grow the right sold. where seen really rental day the marketplace seeing Simulcast market high can number Simulcast+ across of advantage can have platform. car now. be fleets. volume their the sell moving the fleet of of are and these

in in are grow the the the Simulcast+ to are share digital about and opportunity functions all This this platform from the in other any will offered competitor give value not We and of car on KAR the see excited wholesale customers rental available our platform segment. features that its the success the industry.

utilize car retail of recession, discussion time today than caused first differently transactions dealer-to-dealer the years. this ago, is the of that supply. same in wholesale years difference demand marketplaces dealer of used XX is disruption shortage my record the car to great to vehicles health of wholesale segment. with major by followed let the A experienced the reduced XX new clearly of economy car a the supply dealers from the we’ve and has pricing eight is months. recent car Now, About and not the high up sales. saw This me new years strong following wrap production There we ago situation. the used the The last over

disruption until to XXXX. much years, limited in plummeted to the Because new we in did months New quicker. the to normal to and car segment expect trade production dealer after car of the was our not markets XXXX instead recover return be

over expect We dealer of source a X the the segment next growth years. to be

balance Now, our capital let me for sheet to allocation. priorities position speak and

from First, and obvious sheet it improved is year. materially earlier is our cash balance position this

over in have cash. $X.X billion We

is down leverage X.X to net times. Our

and sheet balance announced XXXX have could We this even efficient Pipe during if the during through needed under transaction, the Pipe asked capital the demonstrated strong really you times been circumstances. we characteristics businesses KAR us the year. transaction we businesses more earlier get the we When I’ve raise made yes. through the XXXX is cash and a we many our told flow that pandemic a any continue Well, that that pandemic. of to wanted answer

I As normal related number happening our impact with at further COVID today economy being of cases what of on the likelihood deaths, look is continued growing returning and to the made. restrictions the am very the the would we possibility business of further with the near any I like, future in in on happy of the decisions than future, the us and that and

with Now, dealer-to-dealer the space, pursuing sheet we it have aggressively the as BacklotCars. confidence balance acquiring digital including is, in the

be our KAR amount our by repurchase position shares stabilized have share expect We $XXX stock leverage conditions. commit market The to million to and repurchasing repurchase will under we authorization. existing determined

future the be as expect XXXX. And these markets this offset preferred we return needed normal, working year. partially likely that our expect from of issuance do will earlier dilution stock purchases capital We sometime to finally, in will our

future. business of capital on time have normal to this to the support continue to return will in adequate as growth cash of the to things focus generation We the ensure disruption efficient during of we

And to we will business to had in on to forward have a We the higher a conditions, return lower previous our in marketplace. gross I a having when are SG&A volumes hopefully cost margin years. committed we than XXXX, and structure market normal focus in look growing

comments, lot will I the the to growth and had it to strategy have support over then Eric now focus the and take a to that Eric? I a some I’ve so to and about right turn know your future. We break will talk we get in today, more for questions.

Eric Loughmiller

Jim. Thank you,

PWI me Let start growth. by on updating you

We its Financial. year PWI. We divest at the PWI. growth Preferred could expectation Kingsway PWI Kingsway by will they Kingsway agreement accelerate auto earlier the approached to have Warranties, to reached Financial were Inc. to warranty business with this existing with acquire proposal to that add

of PWI As became core home marketing disruption, not was fact clear we is into it The product to we was and the during us ADESA we back or the any looked that AFC, better had not pulled of that integrated PWI core and our line offering a to Kingsway platform for COVID PWI. businesses. this either that and PWI the sales consumer-focused a the of initial on at business,

the awaiting their as strategic has transaction for The have The more are SPAC came and the of our Investors AFC a within CarLotz which X recently provide price also ago, transaction an cash of past AFC business not in year-end. been ADESA customer and close CarLotz, expect asked years to transaction. with X to has was relationship. was segment of our the reported information us announced to KAR. years. $XX for part We us on opportunity approval a about investment to CarLotz less financial been to and is PWI material regulatory million. purchase results have than before the

from loans over acquired as to a have model. have supported of their source inventory inventory ADESA, years. AFC and AFC with as they relationship strong and to with utilize used lender their consignment supplement ADESA continues to plan the retail CarLotz car as We floor a growth their sourcing

ownership in part position As a minority accumulated relationship, of we CarLotz. have our

SPAC make their of investment of business strategic in their announcement opportunity partnership. we recent the had our part the With as transaction, an to

our proceeds We CarLotz. and into investment back a from portion the we’ll be be reinvesting of proceeds will receiving SPAC

relationship through their as We relationship. are continuing to strategic our the our we opportunity serve model BXC see with CarLotz,

of a transactions. We investor minority proposed completion remain the will following the

turn for year-end with financial statements. our me our KAR’s let to Now, beginning results, reporting financial plans

the reporting we years, and metrics Over complex understanding KAR’s increasingly past become the have has the a business. plus of XX various myriad of of assist components investors results provided our to

the through not relevant performance our with structure managing are our transformation. following metrics While simplified the be digital performance. the consistent believe will the metric Also, business our we and the year-end, simplifying is much indicators information to easier we at is it reflect should volume should we explain the of very key of we we spin-off Beginning the and management detailed, be IAA, provide disclose. have how

through is to physical now auction our relevance are selling We digital volumes. all There marketplaces. vehicles no longer online-only and

provide We sold will vehicles the consignors on transactions. be between split dealer-to-dealer disclosing and commercial total details and

will business the expect to the for sufficient be in this our on investors information performance. trends We understand

unit revenue We fee disclosures. the provide metrics, unit the also with simplify differences per marketplaces. various auction in per For that the explain major intend our will we to level of revenue will detail

revenue attached without including of our trends auction be investors and not in to will metric. the which physical in to will the disclosure understand the revenue related of in confusion This allow ARPU vehicle service ARPU. is our We services ancillary current

provide presenting various to and income the We believe presentation information, trends revenue will will fee investors in statement for auction revenue. streams simpler separately a services including income this Our allow similar be ADESA. and the understand

In terms and segments expect our report of reporting, our we two to segment AFC. ADESA of business:

as past separately reported a company filings. in holding have segment been Our costs all

not the AFC. There no are segments. costs to the combine reporting operating operating are and the company ADESA to segment into expenses meaningful that expect related holding We for

allocation basis the expenses like interest, depreciation for and of disclose corporate reported corporate expenses other to the will We segments.

the KAR will to the speak holding models currently of in the develop easier key should on simplification streamlining SG&A of expenses will me company understand practical and the to segments And at are make guidance. look segment. of to not reported let our performance our reported the separation in and structure more the finally, that future. metrics how business We and believe perform the reporting in have I

not We and we in continue likely shut of completely portions uncertainty markets of have be geographies to major near-term, a high the but level are to believe serve. operate the with the down across stabilized

the to guidance we not in we We guidance but announced remainder of are for giving XXXX, February XXXX. are when intending earnings reinstate for

provide our these guidance with key insights will We changes. sharing guidance. insights our the prepare assumptions investors into intent plans our am performance for high into our I for reporting to to the used with formulate level

all this on We the are to important detailed to to of in slide reasons our our in you digital afternoon. of including picture what free going the changes for marketplaces performance. provide the this a strong channels release, disclosure and press earnings our earnings across understand disclosure yesterday strong believe you flow picture generation so report thought current performance continuing clear expect. was cash clear We QX, dialog business. our my supplement are overview I a comments and committed business and I that start now, know gives provide our forward. provided of details to to plan segments will we model it providing how This only of match business. I of operating an

normal. the cash flow return in negative April, that balance in reverse to still support an $XXX and to continue the funding weeks, cash We the March, the important on our of performance experienced cash revolver. have million have growth will available and flow once It in improved markets is next with of we been an sufficient QX. May, cash couple have transaction undrawn about sheet to to BacklotCars we After able

gave to a questions remarks. thank quite as bit I your with of we us shared why have you so our time today, you And we get your you information We listening for don’t now.

Operator

John Thank of you. question with the [Operator Our line from America. of Instructions] first comes Bank Murphy

Your open. is line

John Murphy

are morning, Good Hi. guys. How you?

Jim Hallett

Hey, John.

John Murphy

here. try to bunch a so as as questions, keep of brief got I’ll it I I’ve can

it also mentioned you give total just potentially far us EBITDA? on if right $XXX metrics million then your of plus now including is sales EBITDA you as contributing I’m double ADESA, TradeRev as Jim, that mentioned time. First, corporate operating it up. you where BacklotCars, you could can curious And volume, BacklotCars some over and ramp potentially as basic ultimately

just I’m kind of without curious some very would how sort So, because that that of a be obviously? happens cannibalization, jump significant

Jim Hallett

start get me then with question $XXX let the to John, and million. second So your I’ll

First, is And the years volume not and is volume. digital we in said period putting I that at that X to believe look we And be want $XXX get addition can for the we going over to be – what it of TradeRev, the get two we It’s it’s volume doubles believe driven million. BacklotCars clarify really, quickly million metric going to and as not synergies. going together, determine how it speaking to with volume. you to to dealer-to-dealer as to tell I can $XXX be the be by going okay, will to clarity. of that – $XXX intended It’s what to get the I say the space, our putting we I these I businesses with the million, now, one

Mike Eliason

add let John, me And something.

about a that on million loss. run on BacklotCars you have that rate that I’ll the talked nets that, they’ve out could of a their so which to We We have give incremental very a year the modest any segment, is vehicles. XXX,XXX run they $XX rate locally, volume dealer-to-dealer were range year and operating across cannibalization. for revenue puts announced at selling the that million a in been estimate they $XX

companies – to about some excited synergies profitable having scale, performance. creating creating moving putting overall marketplace that KAR’s and a – forward really digital contributes we’re together, So, these dealer-to-dealer

John Murphy

online. is, be but And going everything question helpful. the then to that’s appears is second certainly Okay, online-only sold online, it not maybe

you’re future there? have in as monetization you in U.S. the think think, sales facilities, or the this XX potential how we many about need make your I and How transition to should now We going right

Eric Loughmiller

Yes.

we So, John, our is listen, to still critical physical have that we assets the believe one continue of most locations.

a digital I estate very it asset, in For still company, the a is critical many platforms of from differentiates real and us industry. think the

in ancillary vehicles. one, will these provide facilities to So, to need to cars, and services inspect still to to we cars, cars number image check

dictate As still well, certainly auction environment, for dealer there the site letting comfortable it’s want and those the dealers dealer physical the all will channels way cars we’re where years to are what years committed going auction works at digital to decide to making in providing wants. That’s a we’ll us sell dealers and with. running some we’re at that channels, should run up We’ve be listen, that the cars the we’re know, they available prepared they’re physical and speed And eventually all to dealer we their and saying you not best. along vehicle; still it’s to and cars the necessarily and a channel as but sell if that’s years, the not channel. what again, bring been to

John Murphy

And then one last just question…

Jim Hallett

add I one if could John, thing.

to adding over the middle Los to have been Jersey, a transformation the been New Chicago. transformation, digital last the framework. digital with Manville, New And in months, outside that’s in York Angeles, have adding X of City and – X we property We of the

particular. that metropolitan land that land major think part to valuable integral markets, evidence So, in extremely wanted I is becomes that offering. of an And share that’s the the I

John Murphy

then That’s one on just services. ancillary And last very helpful.

BacklotCars to over kind is transform less do there business the or see TradeRevs how greater customers, with you time, services, we and get ancillary and potentially that As of communicate opportunity a board a margin or doing to curious on more? trying a incremental for obviously going great you so just business, forward. that business you how think and that’s Just because about while transactions understand, them great

Eric Loughmiller

there. then quarters. think going users do Yes, and cars still be take especially so ancillary our opportunity and you off-lease opportunity, a is revenue is off-lease I you if look think unit, repossessions in – as has the think of about heavy unit, – which cars We an the even QX, per been the that services. out, phase Eric again, few there been though to had last And history. there per at returning; was it physical, revenue a the bit it down has I was it plan little $XXX – in strong, in fact, metric strong in the to over $XXX a is quarter, we’ve strongest Yes,

to the John, of transportation contribution the increasing interest do in And without ultimately I there get mean, also a property, bigger the So, inspections, this and activity of expanding is the that lot vehicle, is we’re XXXX. a the a cars like when will services contributor and value that probably the and repo strong continue. off-premise and from will be

actually I’m related very forward. So, optimistic revenue and ancillary going about strong services

John Murphy

Great. guys. Thank you very much,

Jim Hallett

John. welcome. You’re

Eric Loughmiller

John. Thanks,

Operator

you. Thank

question from Brinkman line next Our comes the Ryan of with JPMorgan.

Your line is open.

Rajat Gupta

taking This morning. good for the Hi, Thanks is Rajat Gupta Ryan. for on questions.

Jim Hallett

Rajat. Hi,

Rajat Gupta

Hi.

secure there X,XXX going to that and look of like eliminated. employees are furlough end will I you’re the million a from positions you second the the June that XQ saves still indicated cost the have quarter, volumes further recovered back by called October, now $XX on call? had had Thanks. And of it on much be actually Did exit be any anticipating you were versus if at mentioned they rate? not Does it So, had follow-up. degree those

Jim Hallett

Yes.

So, we return either off, to on forward. a those employees or been work as laid go thousand permanently furlough have been able that now to we were still employees couple and did have they’ve

furloughs, this time. don’t So, any major that planned And or we at for. anticipate layoffs accounted and time, was was this at activity

Eric Loughmiller

been And headcount our couple has of the X,XXX at Rajat, last about over stable months.

open were So, open where due was we to have pulled to back positions fill employees on that that attrition. it furlough, were

Rajat Gupta

Got it, got it.

X,XXX employees there pre-pandemic, like at running employees versus are like still X,XXX So, you’re – in fewer like totality, were that right? –

Eric Loughmiller

Pre-COVID, was change. XX,XXX X,XXX our are at Yes. and now number we and last

– been that’s holding there. So, we’ve steady and

Rajat Gupta

that? here And just then XQ versus on How was from Could uptick in saves to that at fourth components That influence in can of look the XQ, should margin That’s like curious be I especially it. the the help that? ask helpful. just mix in unpack Just of it, Got on cost and much progress that well? how got impact? visibility much year-over-year. you as here helpful. TradeRev or Like, will like quarter, is any backlogs coming versus the just gross did the it the reason how you context

Eric Loughmiller

very our gross continuing be net about TradeRev that Jim profit business talked of above to Well, XX% again, level gross we’re that is with the basis. – the all XX% profit on Jim comfortable a units.

pleased So, we’re very with that.

you were as are as the well. higher I tell they percentage. business All you but over tell a and improve auction will mix a right And time down, would strong are I our are our performing would bigger becoming Rajat, I services think year not margin ancillary volumes with businesses of ago now, the

I’m confusing promise but The gross higher to purchased profit, So, gross going sustain can these element vehicles. think is we makes profits. GAAP on it that one I not a basis

but to We’re was we quarter, at light XX% that Last down had XX%, because months gross, XX.X%. on vehicles. even very of purchased

above could stay number. we’ve So, consistent thing that’s the gross a we’ll on been profit and influence very I there. the XX%, But net basis, one that think

Rajat Gupta

you’re going basically, ex-purchased vehicles, comfortable So level forward? with the XX%

Eric Loughmiller

like when is and to happy start right now, we XXs we’d performing we’re ancillary high to sustainable. the good right expect be would very influence, XXs you now. looks to with that. us target services And low tell But that where that’s it in Yes, if for something a

Rajat Gupta

you. helpful. queue. super in That’s back Great. it. get I’ll Got Thank

Operator

you. Thank

of Kennison line Craig with Baird. comes Our next from question the

is line Your open.

Craig Kennison

do units. taking channel decision question morning. in Hey, was to incremental to talked Thanks questions. coming I units from my going that a metrics. a getting your the wholesale that million had units are to But close understand the just to I good My XX from have in used to PhD X help lot. want your where physical I Eric, those coming XX appreciate with going dealer-to-dealer would simplify Is you that’s from. that for never million my million to volume Jim, world? channel about,

Jim Hallett

Yes.

lot typically we’ve that a that things, mentioned to be expanded number it’s is used then to there of from attract these that dealers is, a wholesalers auction, our obviously reach cars who that’s I have really able So, well. buying of and part is, the marketplace the so couple Craig, attract now of And franchises, as never wholesale able a been been to we’ve it. one

million just even weren’t market. We our we’re number cars of to the number that, – addressable XX that becomes it somewhere but positioning So, auction to neighborhood of not up million. now the is those in And we’re coming could think than be exaggerated. that XX all part larger

Eric Loughmiller

sell directly And increasingly the a another is many buying the all you’re element, transaction going consumer, car have the previously as tried starting activity for Craig, cars. them where into to are dealer. well seeing that’s Shift us, retailers, might that going buy consumer consumer-to-dealer Vroom, of dealer other increased and to this Carvana, likes consumer-to-consumer of And are to as an providing groups the opportunity of the with CarMax,

Craig Kennison

whether transportation then curious could Got particularly there? going it. us or transaction benefits, Thank you. per revenue your I’m And finance give or or volume just your feel And the services, EBITDA like BacklotCars, from that’s just that underlying ancillary a includes million number? transaction if it’s comment on whether $XXX back EBITDA the there, of you the assumptions to potential for a

Jim Hallett

Yes.

team This the is is in think are platform, think number about that one and that And think to these on being we the believe we will we the win have And really position. not the add Craig, a I that and the on go and about we clearly that taking BacklotCars is did and that at number important when bit we and we win. buyer what’s So, about position that metric take And participants anywhere the one have the clearly quickly will unmatched buyer have base the number think that’s think to the that we on platforms, too, industry. its this is the think are you winning can base you how to looking that Eric, I’ll that going that? here most we market two. we little base, one when add share to the is buyer is that TradeRev buyer position. want drive it the is focused I leadership the that we has you expand buyer platform add can Volume we and will clearly, win can base number that winner. volume. ADESA base, being

Eric Loughmiller

it and Yes. our inspections. fees have small any to extent that amount And be would income is auction finance In of, to is and there there we but transportation, included, the in it, what to a analysis, AFC relative left BacklotCars was our models. call business, the

incremental including under have we to including over current the in element million. expected And that’s we So, that that platforms, the finance would what same period not $XXX TradeRev. really are

Craig Kennison

it. Thank you. Got

Jim Hallett

are You welcome.

Operator

Thank you.

the line Benjamin question Our of Stephanie comes next with from Truist.

open. is line Your

Stephanie Benjamin

Hi, morning. good

Jim Hallett

Good Stephanie. morning. Hi,

Eric Loughmiller

Good morning, Stephanie.

Stephanie Benjamin

little even bit have give I was maybe would dealers? supply always, come little if what you recent could demand helpful. in bit talk you any on trends, could a Some color come down or has sequentially, seen back from as trends little October hoping pricing, be about thus bit far a a but you

Jim Hallett

Yes.

that’s in Stephanie, conversion, the the little what Really, got is a in can on and but third stay did third I things we necessarily we control of what of see here, seen expect the we the have as pretty can’t up. control company We terms focus quarter control. and a can we the and is quarter say through quarter. fourth volume, continue what our can the So, we and we control team head bit is much to margins will in my digital costs to softening price our can can control we control we where being on and and focused we

Stephanie Benjamin

that will that do tick months? BacklotCars timeline started over you integration Got it. be then integration know to you transaction, is the to back it think profitability commentary your just jump year just Really or on once on as But complete. general have XX helpful. process. when you – now I you expect next to you the the And complete

Jim Hallett

that approval week or able close is, Stephanie, we will we been here I fast we can. haven’t we team the tell process. Obviously, the in my the we that communicate next the in BacklotCars as you expect as full have regulatory mentioned and went with would as we commentary. will through answer so, to I as

be we approval, teams finally able – we be will to the two together. get when bring able Now, this we will

and have it. BacklotCars a on the would move quickly as about move certainly a We to it thought we we and that, and quick business we put lot know we moving be timeframe but this are integration, can to want quick want is in, as weigh we irresponsible going the with to to team for me

Stephanie Benjamin

just would then we analogous on what fair. so accessible inventories, to lastly have done with on do are could you BacklotCars? what likely And Could it, to TradeRev Got that given they assume one that. the you ADESA just and integrate that be site,

Eric Loughmiller

and all have Yes, buyers, now be platforms and that thanks to do our our come with can integrate well. where cars inventory look of I being sign-on We and able vehicles our mentioning see of into to single Backlot, for that. network, on now to all they as all posted same those those would in

Stephanie Benjamin

Thank it. much. so Got you

Jim Hallett

welcome. are You

Operator

Thank you.

with question comes next Our from Imbro Daniel of Stephens. line the

is open. Your line

Daniel Imbro

questions. taking morning, good Thanks guys. our Hey, Yes. for

Jim Hallett

morning, Daniel. Good

Daniel Imbro

cuts. I Jim, wanted the start on expense to

you part the supplemental, eliminated On noted of jobs. you

maybe calling us what Can have made the like activity? we what like with process quote-unquote what physically", it you increased website, still are you’re Thanks. and – selling of in-person buying. are when changes the online-only just yards have does the some Or of do "Reopening your headcount physical processes? see debt they help are how you on that some looks Looking decreased these limited understand look allocations we reconcile

Jim Hallett

Yes.

I And weigh-in Daniel, – of the to will running our vehicles, that’s well. cars. their and on But lane on to their and place come come first it able and screen able business the ask the will lane want could or the office and then start being and able we it. the all, auction or as but start not we’re that to look they walk a of opportunity distanced, okay? XXX%, the where on the to are in the we things the could I gave now in distanced request return to one – be to dealers did at axis, be they a auction Eric So, vehicles, socially inventory, or could open running them in of have bid preview the and sit bid lane up vehicle stand not option are and dealers vehicle, they auction bid of the look and there. did from Be could and come and they We socially

the these auction, the the cars are have with preview cars them but that on block. opportunity are no across there basically to running cars provided bid So, we these and

yard the lanes. personnel, and have the we drivers through running associated eliminated the personnel with So, all and the all cars

Eric Loughmiller

this. more Pre-COVID, project a are be looking And various Yes. we initiated we at of My reconditioning, called think the of Flow And throughout move is Daniel, vehicle, detailing we whatever. that what the whether Car. cars the bodywork, can efficiently had process how mechanical,

flow. sold What allows though, because activity, COVID. made cars more that get sale make for to we a waiting event. faster, have to it efficient With and are us that unrelated posted. changes stop that can online the times. physical not get easier day does, to which COVID Selling the reduces So a car those we much cycle was it We

we here what a for opportunity continue are efficiency And of efficiency. lot day to So, we labor. on to-date around process. is of eliminated labor this predominantly other sale and we working It’s see have aspects

Daniel Imbro

It’s employees And that really quick helpful on Eric, a you noted were think color. quarter that one follow-up last I mostly furlough part-time. on X,XXX

So, have less that incremental eliminated jobs savings all are at salary since initial been a last laid X,XXX Can the quantify these from X,XXX help there than is average the you quarter? us off. what

Eric Loughmiller

employees. we eliminated. the because if of that averaged, an composition say, but you they I included with they That announced would of is we their of quarter, about, a the part-time. I employee. group similar, last is about very many numbers it’s And compensation. in So, That on have so the of shall of again average know clarify, not don’t high that they employees per we were talking day part-time, it annual. concentration we want hourly remaining actual X,XXX salary the that were are the would that, average We be similar primarily be mostly to to labor same $XX,XXX saw range, lot was sale

Daniel Imbro

I Great. in. if squeeze one And could from me it last

next for industry. I year be volumes think, repossessions the you XX% XX% to are Jim, you expecting mentioned up

what have past, the in think the you that? And you we versus your repo about As overweight guys the think are noted capacity, restraints industry. physical I on handling

expect Thanks. peers? your guys P&L? you So, Or exposed more should we are some flowing guys a to that, your how should you about in through we than stronger of growth that there think since see

Jim Hallett

Yes.

be So, I first, Daniel, believe XXXX. less to in XX% is said what XX% will that I volumes repo

So, clarification. that is point one of

capacity of on. – terms bring them In

have to way. the yes, capacity the many and much increase that have segment as will ability we’re that serving. And volumes looking significantly and it’s volumes will We forward come do our expect are XXXX. that repos’ to process a we we over-weighted on very We in

Eric Loughmiller

And Daniel, start. to we will it uncertain when are as

of in the the concerned year, are definitely it’s but may a We the it in looking especially not first tailwind later second be quarter, half the year. like

Daniel Imbro

of Best guys. luck. Thanks,

Jim Hallett

you. Thank

Operator

you. Thank

from question Labick the of Bob Securities. next line Our comes CJS with

Your line is open.

Jim Hallett

Good morning, Bob.

Bob Labick

are Quick to you brands, with of Thanks. one sense go-to-market stick three give imagine. us strategy? dealer digital a I going your can morning. You platform, on Good the

how out? Who Just what’s We it? sales the brands, leading have teams, three play multiple of consolidated ultimately strategy is kind this will there?

Jim Hallett

think. I about me, of Bob, you a ahead week, are XX days

unfair comment working get are it we conversation. are, plans to We that really point know guys on because me time, And Listen, at the thing. this for involved those be this in integration what we on one would plan. need to BacklotCars in

are I have of and things very TradeRev. the pleased over go are with we is serving here we that. they be what and to go mention forward weeks, sales as very, determined with forward needs thing do teams and well, the that today been I few course one customers will to the But how have you know with We doing am got of next great I that they to all platforms to that we able we mentioned. speak those very will two well with how and our but we nature, very platforms

we TradeRev. some Number made guess sales to over some we friendlier for accelerated moves major growth Over the we with our of Number really to last to changes – one really and the easier year, to together. put use. technology make did the has the team and have the two, I is, continues it TradeRev that grow made last customers TradeRev

You together fee team. different heard we our products and fee rate. able TradeRev We growth structure well strategy. about those certainly the Together put being represent seems to have that both to that has up one a to thing sales very went for attracted Better third worked And with structure, then in has that and the is, and more certainly shown business sales

pleased the these we with BacklotCars. TradeRev are want we accomplish TradeRev, and So with we that decisions as we to strides able to track we don’t very with make been made sure what make have have lose of we

Eric Loughmiller

to a sales we think representing found change I thing Jim, have have KAR’s We space all it that will be successful KAR. products do sales comment to team sales one plan not of team There decision. we single team. on can with one dealer-to-dealer the the

Bob Labick

sense around in being moving but Is it now $XXX down then in helpful. why And lack less that have still of to X% mix of trends? service and also we to how the revenue flowing think all to kind the was but full or purchase broken $XXX the forward because to look $XXX, but purchase I much And what is more of about at just us answers can looking you it QX, cars a ago out future, quarter $XXX. ARPU know thinking ARPU there, rebounded very very great. but Okay, right Is now, given you how there right digital? not and about understand should less looking Eric through are down nicely ancillary X%, versus from of to that repo are now? moving great lots and ARPU the year give we cars cars parts, a forward of

Jim Hallett

a That is we pressure I large in was number OPENLANE grounding looking from you the as North here Yes, online-only very large Bob, down, ARPU the – is online-only America transaction and have because number taking get of as got volume biggest which details. of the XXX,XXX where those saw us vehicles, what quick, that will at coming for absolute real a and is platform. of our known out transactions dealer are was

So, that’s a big impact.

the all services, second denominator I and Second, be biggest that that the when in ancillary the apply units decline related to all negative. sold, being would

spreading transactions, bigger and physical that sold. am over denominator I transactions up much all volume basis for total the While now on a a the with I’m those

there are things. shift either. those is the So, do secular I not in think a two

cases, transaction we transaction doing want they in they a pricing getting They a wholesale those today. secular. XXXX, before fee, The sell it’s gross making the dollars back, Not where more high are want our on in is market marketed the to are then so fee. few car wholesale to grounding very profit profit. have while a back many to a conditions ancillary because experienced get wholesale don’t by think I buying wait on get to such they a platform low that environment, are services. XXXX And that fact a they we dealer can’t transaction we cars the this

are I situations. temporary think those

you those see stabilizes, rebound in market will my the two As elements opinion.

Bob Labick

in, big sneak Yes, helpful. great. Okay. that’s to just one, last Super And then picture. more

and option six what that months, but KAR last in BXC, over long approach? shift a are the marketplace an for period really in future, the cons is massive over the fast time, of to the business-to-consumer Given the pros and

Jim Hallett

Yes.

have So, the that’s wholesale integration getting space And I plan tell need Bob, focus. this our hand. point it on stay that strategy radar time. laser on that dealer-to-dealer and is and you is focused we what And not focus things BXC plan I something we the that and think on I getting and clearly at getting at would all go-to-market is our getting our right digital in to TradeRev, right, think our this we BacklotCars in

Bob Labick

you very Okay, much. super. Thank

Jim Hallett

welcome. are You

We only a have got few minutes. more

have tried to we many can, be get but as we So, as quick.

Operator

Thank you.

from comes Bret of Jordan the question line with next Our Jefferies.

open. is line Your

Bret Jordan

guys. morning, good Hey,

Jim Hallett

Good morning, Bret.

Eric Loughmiller

Good Bret. morning,

Bret Jordan

for feeling and give dealer they Looking largely both overlap? TradeRev, there guys using platforms separate? Are could or us now a you Backlot are at

Jim Hallett

but geography. as the the I you adding markets overlap base XXX% to using that’s The platforms would than overlap, There my entire they base. they of that’s if in to But car, opinion, be a overlap. the the some buyer because we’re serving, overlap, is than describe any dealers, scientific marketplace review. will on a it’s be geographies don’t not or probably more because all anecdotal the probably with we you always. close – like is less dealer can. don’t ADESA, wherever coincident would think less transact across review, all XX%, overlap geographies not Bret. If a would – The It and go wherever to get more can we the

Bret Jordan

into, that as we million progress? I EBITDA guess how Okay. mean, can so at And units margins, you unit of $XXX then you knowing and of question, of the know the look what many does sort benchmark back I

Jim Hallett

would forward-looking statements. level be It of level that contribution into Backlot combined and get consistent performance the TradeRev to are we of what a going not seeing are We today. with in

looking XX% scale. what you that’s we you are get I to models and number, with I We that would are the that fee scale. TradeRev, specific for we view that not am spoken smaller then guiding EBITDA dollars. a we business that the that of how get revenue grow, the profit leverage the gross to at but at to a structure the SG&A, to about, very without with we high probably have in transaction to quantifying is dollar where have probably XX% provides look at per Again, are looking looking

Bret Jordan

Okay, great. Thank you.

Jim Hallett

Welcome.

Operator

Thank you.

Gary question comes the Prestopino of Barrington next Our with from line Research.

open. is line Your

Gary Prestopino

everyone. morning, good Hey,

Jim Hallett

Hi, Gary.

Gary Prestopino

I are now are XXX% not physical to of will quick. digital, going activities. kind want you be correct, to clarify auction that back any just a you Jim? real I Is

Jim Hallett

to a return So, cars. we Gary, running to digital no have are we XXX% and plans

Gary Prestopino

Okay, And you did flow give quarter? for then, the free the cash Eric, number great.

Eric Loughmiller

back was It $XXX to the we the it look, that but was were have think negative. I cash I strong go performance, is very million, positive a neutral flow I’d Year-to-date to in because positive financials, very to have operations. from

cash right have was it of in in So, a quarter. strong that I quite of but the it don’t contribution quarter. Gary, generated very to me, front the a was bit

Gary Prestopino

would BacklotCars mature TradeRev a starts just or going you know question, this and quick middle? $XXX are somewhere then be combined looks that, don’t per of combined, contribution not, that, gets like you And the Okay. integrated about to and it – to than but are adjusted generating I this EBITDA somewhere higher to that in starts if answer than from the vehicle, entities as you expect lower

Jim Hallett

that but Gary, seems like target type of let’s specific, reasonable business. that not a get for too

We’re not ballpark. that in that. looking the we marketplace – leave will I in think have we achieve leverage it we could the numbers that at just

Gary Prestopino

EBITDA The of ballpark $XXX about for car… of

Jim Hallett

let’s $XXX Yes, put between target. and just it in $XXX the a is somewhere reasonable middle

Gary Prestopino

lot, Okay. a guys. Thanks

Jim Hallett

welcome, Gary. You’re

Operator

no over now the remarks. further Thank to in for Jim you. call back questions the will I Mr. Hallett I am showing closing queue. turn

Jim Hallett

about this that you in can our for good tell we you feel support appreciate morning. how are positioned being I we and Well, thank Great. Again, very interest your we here. on continue to Company.

look energizing. I can you and coin but other of challenges, at the you COVID also it’s that very at think – can all the team at is been look the and side you happened look is really, can that

it think digital. manage this the we team can how how like I and really can take it’s as an and industry to we transform this business energized to

team the energized. think is I

excited margins the put with on and about excited Eric have today. only I we’re that but focused that cost forward, think place maintaining not I spoken we about in going with the structure and digital,

and volumes are will forward think to to the at opportunity, you in is markets there to the share ample looking with coming, we up We more and call February. have year-end we XXXX. coming looking our forward So, returning

you appreciate thank We on. So, it. for being