OPENLANE Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 19, 2025
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Operator

Good day, and welcome to the Open Lane Fourth Quarter and Year End Results twenty twenty four Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Itano Arelluru.

Operator

Please go ahead.

Itunu Orelaru
Itunu Orelaru
Head of IR at OPENLANE

Thanks, operator. Good afternoon, everyone. Welcome to Open Lane's fourth quarter and fiscal year twenty twenty four earnings call. With me today are Peter Kelly, CEO of Open Lane and Bradley Kia, EVP and CFO of Open Lane. Our remarks today include forward looking statements within the meaning of the Private Securities Litigations Reform Act of 1995.

Itunu Orelaru
Itunu Orelaru
Head of IR at OPENLANE

Such forward looking statements involve risks and uncertainties that may cause our actual results or performance to differ materially from such statements. Factors that could cause such differences include those discussed in our press release issued today and in our SEC filings. Certain non GAAP financial measures as defined under SEC rules will be discussed on this call. Reconciliations of GAAP to non GAAP measures are provided in our earnings materials and available in the Investor Relations section of our website. With that, I'll turn the call over to Peter.

Itunu Orelaru
Itunu Orelaru
Head of IR at OPENLANE

Peter?

Peter Kelly
CEO at OPENLANE

Thank you, Atunu, and good afternoon, everyone. I'm pleased to be here today to share Open Lane's fourth quarter and year end results. I'll start with a few highlights, but spend the majority of my time discussing our strategy and where Open Lane is headed. Brad will then walk you through the financials and provide our guidance for 2025. Open Lane had a very positive fourth quarter and full year 2024.

Peter Kelly
CEO at OPENLANE

Customers are responding to our unique offerings and the differentiated value we deliver in terms of ease, speed and outcomes. The momentum that we're building in the market is tangible and all of this is reflected in our results. During the fourth quarter, we grew consolidated revenue by 12% and consolidated adjusted EBITDA by 18%, driven mainly by a 9% increase in marketplace volumes. This marks the seventh straight quarter of year over year volume growth in the marketplace segment, which included a 15% increase in dealer volumes. The marketplace also generated $31,000,000 in adjusted EBITDA during the quarter, an impressive 30% increase.

Peter Kelly
CEO at OPENLANE

On a full year basis, Open Lane generated $293,000,000 in adjusted EBITDA, driven by a 24% increase in marketplace adjusted EBITDA. We also generated $293,000,000 in cash flow from operations and our gross merchandise value grew 12% to $27,000,000,000 another powerful indicator of the momentum we're building in the market. I won't spend a lot of time on our finance segments today given our detailed AFC investor update last November, but I will call out that AFC grew floor plan originations, held the loan loss rates to its lowest level in eight quarters and generated $159,000,000 of adjusted EBITDA for the year. So in summary, Open Lane's consistent pattern of growth and financial performance clearly demonstrates the strong scalability characteristics of our asset light digital model, and it fuels my optimism for our long term growth in volume, market share and profitability. With that, let me turn to our strategy and how we plan to build on this positive momentum.

Peter Kelly
CEO at OPENLANE

As a reminder, our strategy for growth is anchored in our purpose, which is to make wholesale easy so our customers can be more successful. And we're making wholesale easy by focusing on three enabling priorities. First, by delivering the best marketplace, expanding to more buyers and more sellers and offering the most diverse commercial and dealer inventory available. Second, by delivering the best technology, innovative products and services that help our customers make informed decisions and achieve better outcomes. 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.

Peter Kelly
CEO at OPENLANE

As I approach my four year anniversary as CEO, I believe Open Lane is better positioned than ever to deliver on these priorities based on the many positive changes we've made during this period. We acquired, integrated and consolidated new digital assets. We divested our physical assets, paid down debt and improved the strength of our balance sheet. We rebranded the company into what I believe is rapidly becoming the strongest brand in our industry. We enhanced our team with new digital talent and we unified our culture around our customers.

Peter Kelly
CEO at OPENLANE

We're a very different company today and I would argue a much better and stronger company as well. So when I think about our strategy, delivering the best marketplace, the best technology and the best customer experience, the word that I'm anchoring on for 2025 is execution. So building on all that we've accomplished to date, now is the time for us to execute and win. In terms of the marketplace, 2025 will be the bottom of the cycle for off lease supply. We know that going in.

Peter Kelly
CEO at OPENLANE

However, we also have a clear line of sight that these volumes are coming back. New lease originations rose for the seventh straight quarter in Q4 and the majority of that volume will flow through Open Lane First as those leases mature in 2026 and beyond. At the same time, our data and the industry data confirm that the equity gap between off lease values and residual lease values continues to narrow. This means a lower percentage of leased vehicles will be paid off when they mature and that will also result in more volume flowing through our marketplace. So essentially, what was a double whammy for us over the past few years now looks set to become a double tailwind starting in 2026 and beyond.

Peter Kelly
CEO at OPENLANE

That is increased volumes of lease maturities and a declining payoff percentage, and this will be to Open Lanes benefit. We already support the majority of OEM and financial institution leasing programs in North America today, and we were recently awarded back the off lease remarketing business for a large OEM, which evidences Open Lane's technology advantage, leading customer experience, depth of remarketing knowledge and expert decision support capability. So I feel very good about our growth potential in commercial, but I'm equally optimistic about the opportunity in the dealer to dealer space. So let me turn to that now. On the dealer front, our growth accelerated through every quarter in 2024 from lower volumes early in the year to single digit growth in Q3 and then 15% dealer growth in Q4.

Peter Kelly
CEO at OPENLANE

Dealer listings grew, unique sellers and buyers grew, and we had several record months in terms of new dealer sign ups in The United States. So there is a lot of positive momentum going into 2025, and there is still a lot of opportunity for growth. I remain fundamentally convinced that digital is the future. We have seen that in almost every industry. Open Lane offers a faster, more convenient solution that produces better outcomes for customers at a lower cost.

Peter Kelly
CEO at OPENLANE

That's something the physical auctions cannot easily replicate and it's something our customers are increasingly drawn to. We're seeing it in our positive NPS surveys. We're hearing it from customers during dealership visits and industry events. And most importantly, we're seeing it in our volume growth. So the TAM is very large.

Peter Kelly
CEO at OPENLANE

We are well positioned in dealers to dealer and I see this as a source of robust long term sustainable growth for Open Lane. Hopefully, these perspectives help reinforce what I believe is a positive industry position for Open Lane as we look to 2025 and to the years that follow. And I'm confident we can capture these opportunities by continuing to invest in and execute on our strategy. In the middle of last year, we made some meaningful investments in product, people and our go to market approach. More sales, more marketing and more innovation, including our recent launch of One App in The U.

Peter Kelly
CEO at OPENLANE

S. This new version of our platform allows dealers to seamlessly toggle between buying and selling and creates a direct link between the open marketplace and our private label programs. This has two beneficial effects. First, it connects our private label franchise dealers directly into the Open Lane marketplace and it offers the off lease inventory that passes through the private labels to every franchise and independent dealer on our marketplace, more buyers, more sellers and more inventory. I don't think we've seen the full impacts of these investments yet, but our performance in the second half of the year definitely reflects some of the fruits of these investments.

Peter Kelly
CEO at OPENLANE

So we're going to lean in and invest further in delivering the best marketplace, the best technology and the best customer experience. We have a robust pipeline of innovation slated for 2025 that we look forward to sharing over the coming weeks and months. These include additional enhancements to our condition reports, deeper market insights around supply, demand, values and pricing, more AI enabled features and capabilities and more actionable data to help dealers make the best buying and selling decisions possible. To help promote these innovations and to stimulate even more dealer engagement, we're also investing in our go to market approach. It's sometimes hard to believe that Open Lane has only been our flagship marketplace brand in The United States for sixteen months.

Peter Kelly
CEO at OPENLANE

And I'm very pleased that both our internal surveys and third party sources show that Open Lane is rapidly climbing the ranks of the most recognized and most preferred market place in the industry. Anecdotally, I had one Midwestern dealer tell me recently that six months ago, he'd never heard of Open Lane, and now we're his preferred solution. That's encouraging and it reinforces to me that we're on the right track. So we will continue to lean into broader awareness campaigns to support new market expansion, more personalized journeys to stimulate engagements and more targeted promotions to drive up transaction volume and wallet share. I had a West Coast Dealer say to me during the fourth quarter that Open Lane is everywhere these days.

Peter Kelly
CEO at OPENLANE

And that's precisely our goal, to be the first to mind, first to list, first to sell and first to buy. And then finally, we're investing more in people, more feet on the street, more sales resources and a more personal support for our As I've said before on these calls, Open Lane is a digital marketplace in a relationship business. The collaborative partnership approach we take with our customers fosters greater customer loyalty and ultimately will earn us a greater share of their business. As we've mentioned previously, we are making meaningful go to market investments in our U. S.

Peter Kelly
CEO at OPENLANE

Dealer business. We have made the strategic decision to invest now to further accelerate our dealer volumes and share. We're already very strong in commercial off lease, and we believe that these volumes will begin to return in 2026 and continue to grow thereafter. But I want to be sure we are equally strong in dealer to dealer, delivering growth in 2025 and continuing to grow as a multiplier to our commercial growth. These investments are reflected in our 2025 guidance, but you will also see our confidence in Open Lane's ability to both invest and grow revenue and also grow adjusted EBITDA simultaneously just as we did in 2024.

Peter Kelly
CEO at OPENLANE

So overall, I believe we're well positioned to execute our strategy for growth and I believe our key value proposition for investors remains compelling. Open Lane is an asset light, highly scalable digital marketplace leader, focused on making wholesale easy for automotive dealers, manufacturers and commercial sellers. There is a large addressable market in North America and in Europe and we're uniquely well positioned with both dealer and commercial segments. Our technology advantage is a competitive differentiator that enables us to bring new products and features to market very quickly. Our floorplan finance business is a category leader that is highly synergistic with our marketplace.

Peter Kelly
CEO at OPENLANE

We are cash flow positive with a strong balance sheet and well positioned to invest in growth and deliver shareholder returns. And we believe that our business has the capabilities to deliver meaningful earnings growth over the next several years. So before I turn things over to Brad, I want to remind you that this will be his last earnings call with Open Lane. I appreciate his leadership and many contributions to our company, and we wish him all the best. As an update to our search, we have been actively evaluating CFO candidates for the past few months, and we look forward to introducing you to our new CFO when a final decision is made.

Peter Kelly
CEO at OPENLANE

So with that, I'll now turn the call over to Brad.

Brad Lakhia
Brad Lakhia
Executive VP & CFO at OPENLANE

Thank you, Peter. We had a successful 2024 and fourth quarter delivering strong operating and financial results. The investments made in innovation, our go to market strategy and our management culture are reflected in these results. The Open Lane team executed in a superior manner, resulting in a strengthened marketplace platform that is winning in the market and consistently delivering excellent and easier customer outcomes. As usual, certain comments I make related to consolidated Open Lane and the Marketplace segment are on a net revenue basis, which excludes the impact of purchased vehicle sales.

Brad Lakhia
Brad Lakhia
Executive VP & CFO at OPENLANE

In addition, my comments will be on a fourth quarter year over year basis unless I state otherwise. I will start with the results at a consolidated level and will then cover segment results. Finally, I will wrap up with some commentary and expectations for 2025. Our consolidated revenue was $455,000,000 up 12%, the third consecutive quarter of top line growth reflecting improved momentum in each of our segments. Revenue growth was mainly driven by the 9% unit volume growth within our marketplace segment.

Brad Lakhia
Brad Lakhia
Executive VP & CFO at OPENLANE

Total cost of services was $245,000,000 up 19% primarily due to increased marketplace volumes and mix shift. Adjusted EBITDA was $73,000,000 up 18% while full year adjusted EBITDA was $293,000,000 up 8% driven by increased marketplace volume, lower SG and A and increased auction fees. Consolidated SG and A for the quarter was 100,000,000 down 2% while full year consolidated SG and A was $4.00 $9,000,000 down 3%. This reflects the successful execution of our cost savings initiatives which have more than offset general inflationary headwinds and the incremental go to market investments we made in the second half of twenty twenty four. The net decrease in SG and A is primarily attributed to lower compensation expenses and professional fees and the realization of cost savings from our technology platform consolidation initiative.

Brad Lakhia
Brad Lakhia
Executive VP & CFO at OPENLANE

As a company, we remain committed to maintaining a culture of rigorous cost management that will continue to unlock investment in growth and innovation. Turning to the Marketplace segment, revenue increased 8% to $349,000,000 Our total volumes were up 9% with dealer volumes up 15% and commercial volumes up 5%. The dealer growth was fueled by successful investments in our U. S. Go to market strategy as well as increased demand in Canada.

Brad Lakhia
Brad Lakhia
Executive VP & CFO at OPENLANE

Auction fee revenue increased by 24%, driven primarily by 9% volume growth, sales mix and auction fee price increases. As reported, services revenue was down 2%. However, excluding the transportation accounting change, services revenue increased by 1%. Gross profit was up 20%, primarily due to increased volumes and lower depreciation and amortization costs. Please note, we have updated our marketplace gross profit calculation.

Brad Lakhia
Brad Lakhia
Executive VP & CFO at OPENLANE

In our 10 ks, marketplace gross profit is now reported on a GAAP basis, which includes an allocation of depreciation and amortization within the cost of services. This method has been applied to comparable periods and a reconciliation to adjusted gross profit is now available in the supplemental materials posted on our website earlier today. Marketplace SG and A decreased by 1% in the fourth quarter and by 3% for the full year, driven by the factors discussed earlier. Marketplace adjusted EBITDA was $31,000,000 up 30%. Full year marketplace adjusted EBITDA was $135,000,000 up 24%.

Brad Lakhia
Brad Lakhia
Executive VP & CFO at OPENLANE

This improvement was driven by volume growth, higher auction fees and lower costs. As Peter stated, 2024 was a strong year for our marketplace business. We are pleased to see Open Lanes momentum accelerate. Our dealer business is growing by offering a better, faster, higher value solution at a lower cost. This combination represents a highly scalable, competitively differentiated business model, particularly when compared to physical models.

Brad Lakhia
Brad Lakhia
Executive VP & CFO at OPENLANE

Our commercial business is a clear market leader and is well positioned to capture the benefits of the anticipated increase in lease maturities beginning in 2026. Our pipeline of innovation is extending our technology advantage and we believe our focus on customer experience creates the opportunity to position Open Lane as the most preferred digital marketplace provider. These factors, amongst others, give us confidence in our strategy and increased willingness to invest for growth. As I turn to our Finance segment, I would like to remind you of the updates we've made for our AFC business. These changes were detailed in our November investor update, which is available on our Investor Relations webpage.

Brad Lakhia
Brad Lakhia
Executive VP & CFO at OPENLANE

We feel these enhancements will improve investor understanding of this business, better highlight AFC's top quartile performance metrics and should improve one's ability to value this meaningful part of Open Lay. Turning to our finance segment results. For the quarter, total finance revenues were down 5%, primarily driven by lower vehicle values, lower interest rates and a decrease in days outstanding. This was partially offset by a modest increase in volumes. In the quarter, floor plan originations were up 6%, floorplan curtailments were down 7% and total loan transactions were up 1%.

Brad Lakhia
Brad Lakhia
Executive VP & CFO at OPENLANE

The growth in floorplan originations was primarily due to two factors. First, we focused on organic growth initiatives during the quarter, which yielded positive results. Second, we saw a notable increase in independent dealer sentiment and health. Overall inventory on dealer lots increased in the quarter and this was further supported by improved inventory turnover evidenced by a decrease in days outstanding and a decrease in curtailments. Net finance margin was $78,000,000 reflecting a yield of 13.8%, up 50 basis points due to an increase in floor plan originations coupled with a decrease in average vehicle values.

Brad Lakhia
Brad Lakhia
Executive VP & CFO at OPENLANE

Finance segment adjusted EBITDA was $42,000,000 up 10% and representing the first quarter of year over year adjusted EBITDA growth in eight quarters. This improvement reflects the improved dealer fundamentals already discussed, improved risk management and disciplined cost management. Finance SG and A was down 6% driven by factors discussed earlier. And from a risk management perspective, we were pleased with the fourth quarter provision for credit losses of 1.9%. This is the lowest rate in eight quarters reflecting improved fundamentals and our leading proprietary risk management capability.

Brad Lakhia
Brad Lakhia
Executive VP & CFO at OPENLANE

We saw consistent improvement in the frequency and severity of losses during the quarter and throughout 2024 as a whole. And we expect these improvements will continue through the first half of twenty twenty five. AFC's continued strong performance in 2024 can also be attributed to its unique service delivery model and robust customer relationships. As we've previously highlighted, AFC is a core business for Open Lane that is complementary to our marketplace business. Its leading financial returns and risk management processes underscore AFC's overall strength and durability.

Brad Lakhia
Brad Lakhia
Executive VP & CFO at OPENLANE

In addition, AFC's strong cash flow characteristics fuel innovation across Open Lane and strengthens our capital allocation strategy. Moving to the balance sheet and capital allocation. Consistent with prior quarters, we continue to generate strong cash flow. We ended the year with an improved balance sheet and liquidity. We had $293,000,000 of cash flow from operations and our consolidated net leverage stands at approximately 0.3x.

Brad Lakhia
Brad Lakhia
Executive VP & CFO at OPENLANE

This level of cash generation demonstrates the value of our asset light, digitally focused marketplace business working in combination with our leading floor plan finance business. Overall, the core of our capital allocation framework remains the same. We continue to prioritize the funding of organic investments while ensuring flexibility for high return, complementary strategic opportunities and shareholder returns. In 2024, we bought back approximately 1,800,000.0 shares as part of our share repurchase program. As of the end of twenty twenty four, we have approximately 100,000,000 available for repurchase under the program.

Brad Lakhia
Brad Lakhia
Executive VP & CFO at OPENLANE

And our philosophy on share repurchases will remain principled and opportunistic. In addition, as mentioned in prior calls, we plan to use cash flow from operations and available liquidity to repay the $210,000,000 senior note due in June of this year. Looking ahead to 2025, I'd like to provide some commentary on factors that we expect will impact our business performance this year. From an industry perspective and as discussed regularly over the last year or two, we are now in the midst of the most challenging period of off lease maturities and this low point will continue through 2025 until we expect to see improvements beginning in 2026. From a macro perspective, like all industries, we continue to experience a wide range of macro uncertainties.

Brad Lakhia
Brad Lakhia
Executive VP & CFO at OPENLANE

And more recently, this has resulted in a strengthening U. S. Dollar, which is creating some translation headwinds. In terms of our business portfolio, we completed the sale of our automotive key business in the fourth quarter. This service business was not core to our digital marketplace business model and represented approximately 2% to 3% of Open Lane's twenty twenty four consolidated net revenue and adjusted EBITDA.

Brad Lakhia
Brad Lakhia
Executive VP & CFO at OPENLANE

The sale advances our strategy, further simplifies our business model and enhances value for both our customers and investors. With regard to our go to market initiatives, we plan to continue to make investments in the first half of twenty twenty five consistent with the second half of twenty twenty four. We are seeing the returns from these incremental investments and therefore we have confidence further and ongoing investments will not only drive growth but will improve our customer experience. Given these factors and others, we expect our 2025 adjusted EBITDA to be between $290,000,000 and $310,000,000 and we expect our operating adjusted earnings per share to be between $0.9 and $1 Finally, we expect capital expenditures to be between $50,000,000 and $55,000,000 in 2025, which is in line with 2024. Further support for these guidance metrics are available in our earnings release published earlier today.

Brad Lakhia
Brad Lakhia
Executive VP & CFO at OPENLANE

To summarize our fourth quarter results, volumes grew by 9% driven by 15% dealer growth. Consolidated adjusted EBITDA grew 18% with marketplace adjusted EBITDA growth of 30%. And we generated $293,000,000 of cash flow from operations for the year. As Peter mentioned earlier, this is my final Open Lane earnings call. So I want to close by expressing my appreciation and gratitude.

Brad Lakhia
Brad Lakhia
Executive VP & CFO at OPENLANE

It's been a privilege and an honor to serve at Open Lane. Open Lane has the right strategy, the right business model and a talented winning leadership team who are committed to our purpose. Therefore, I remain optimistic about Open Lane's future. Peter, thank you and the entire Open Lane team for supporting me and making me a better leader. And finally, I want to thank our entire investment community for your support, insights and trust.

Brad Lakhia
Brad Lakhia
Executive VP & CFO at OPENLANE

With that, I'll turn the call over to the operator for questions.

Operator

Thank you. We will now begin the question and answer session. And the first question will be from Bob Labick from CJS Securities. Please go ahead.

Will Gildea
Equity Research Associate at CJS Securities

Hi, this is Will on for Bob. With the industry decline in all fleets vehicles, how are dealers handling trade ins? But are they keeping more and setting less option or have volumes been steady?

Peter Kelly
CEO at OPENLANE

Thank you, Will. Volumes have been steady or strong. Our D2D volume growth in the fourth quarter was 15%. That's the strongest growth we had all year. So very pleased with that number.

Peter Kelly
CEO at OPENLANE

We grew our active base of sellers and buyers. We had some really strong months of new dealer sign ups on the platform as well in The United States in the fourth quarter, so I was really pleased with all of that. And even though we didn't say it in our remarks, volume of listings, I believe, grew even faster than the 15% volume of sales. So I'm not noticing any lack of inventory out there at dealers, at least not up to this point. So feeling good about that, Will.

Peter Kelly
CEO at OPENLANE

Thank you.

Will Gildea
Equity Research Associate at CJS Securities

Thank you. Very helpful. And then just one more. Do you expect Canadian wholesale volumes to be affected by tariffs or trade war? Thanks.

Peter Kelly
CEO at OPENLANE

Yes. I guess what I'd say to that is, first of all, I think Open Lane is very well positioned to survive to prosper and do well in any sort of environment we find ourselves in. If I look at the fourth quarter, we see progress strong progress on the commercial front with commercial volume growth, new customer wins and strong progress on the dealer front, which I was just speaking about. So I feel good about how we're positioned exiting the year and starting the new year with our asset light business model, with our strong balance sheet, and frankly with the management team that has been through, I'd say, some challenging macro environments here over the last four years. So I feel really good about that.

Peter Kelly
CEO at OPENLANE

There's a lot of speculation out there about tariffs, will they be applied, what will they apply to, will they apply to used cars, what are the percentages. So there's a whole range of variables there that I don't really want to speculate on. But I'm confident that this company is well positioned to prosper in whatever environment we find ourselves

Peter Kelly
CEO at OPENLANE

in.

Will Gildea
Equity Research Associate at CJS Securities

Thank you.

Peter Kelly
CEO at OPENLANE

Thanks, Will.

Operator

And the next question will be from Rajat Gupta from JPMorgan. Please go ahead.

Rajat Gupta
Equity Research Analyst at Go India Advisors

Great. Thanks for taking the question. Just had one first question on the D2D volumes. Nice acceleration here, progress here, so congrats on that. Curious if you could give us a sense of what do you think the market did in the quarter and what your share gains were in The U.

Rajat Gupta
Equity Research Analyst at Go India Advisors

S. Specifically? And then as a follow-up question, anything you could give us in terms of what's baked into your guidance? It's a wide range, obviously, in terms of your outlook for both dealer and commercial volumes. Thanks.

Peter Kelly
CEO at OPENLANE

Thanks, Rajat. So let me take the first part of that question first. So I guess, yes, in Dealer, I'm pleased with the performance in the quarter. As I mentioned, it was our strongest quarter of the four quarters in 2024, '15 percent year on year growth. We saw solid growth in both United States and Canada, so good growth in both markets.

Peter Kelly
CEO at OPENLANE

I feel good about that as well. Not only volume growth, but volume growth on vehicles offered for sale and on participating sellers and buyers. So I feel really good about that. Your question had sort of specifics around The United States. In The United States, I feel really good about the additional investments we leaned into sort of at the end of the second quarter, beginning of the third quarter.

Peter Kelly
CEO at OPENLANE

So that was a strategic decision we made coming off the Open Lane rebranding, the integration of the commercial inventory. We felt now was time to sort of hit the accelerator a little bit on our go to market approach. So we made some, I'd say, very targeted and thoughtful investments, both in technology, in sales and marketing efforts, to go out there and sort of grow participation. And I see that paying off. I don't think we've seen the full payoff from that yet, but but I think some of the impacts of those investments were much drove the improving performance through the end of the fourth quarter.

Peter Kelly
CEO at OPENLANE

So feeling good about that. Frankly, that caused me to increase those investments slightly towards the end of the fourth quarter as well. So we've got some strong momentum here going into 2025. And I guess as I look at The U. S.

Peter Kelly
CEO at OPENLANE

Market, Rajat, I see us as a fairly today, a fairly small player market share wise in a very large TAM. Okay. So our market share in The U. S. Is relatively small, but our offering, I believe, is very, very strong.

Peter Kelly
CEO at OPENLANE

And I hear that feedback from our dealers when we talk to them. I see that in our NPS surveys. I see that in the repeat use and adoption we have in the platform. So I feel very bullish about the D2D market. And I look at the sort of D2D opportunity as a source of sustainable long term growth for this company.

Peter Kelly
CEO at OPENLANE

So that's kind of how I'm looking at it and that's how we're going to go after it. On the commercial side, obviously our commercial footprint particularly with off lease sellers is one of the things that makes this company unique. It's a strong source of differentiation. So again, I feel really good about that. It happens, as you know, that 2025 will be a challenging year in terms of overall commercial off lease volumes because of the low lease originations in 2022.

Peter Kelly
CEO at OPENLANE

So that's a known factor going in. Our guidance reflects that. But what I take a lot of confidence from is that despite that and by the way, that was also the case in Q4. So commercial volume maturities in Q4 were down versus Q4 of the prior year. But nonetheless, our business delivered a very strong performance.

Peter Kelly
CEO at OPENLANE

So I'm looking at a continued strong performance on the commercial side of this business in 2025 and then the acceleration of that in '26, '20 '7 and beyond. And I think so when I sort of put those two things together of a dealer business that's growing steadily over time, where we can grow our share, grow our customer base and grow our TAM, Alongside that a commercial business that's going to start accelerating in '26, '20 '7 and '28. Alongside that a strong finance business that's delivering outstanding results. I kind of put that together into a very strong opportunity here for Open Lane and that's what has me excited about the prospects for this company.

Operator

And the next question will be from Craig Kennison from Baird. Please go ahead.

Craig Kennison
Director of Research Operations & Senior Research Analyst at Baird

Hey, good afternoon. Thanks for taking my question. And Brad, just want to wish you well, you had a very positive impact on Open Lane. Maybe I'll start with you, Brad. I see a line item on the cash flow statement tied to what it looks like about $80,000,000 Is that basically the key business?

Brad Lakhia
Brad Lakhia
Executive VP & CFO at OPENLANE

Yes, that's accurate. That's accurate.

Craig Kennison
Director of Research Operations & Senior Research Analyst at Baird

Okay. Thank you for that. And Peter, I think you mentioned on the off lease side, you had an award back. Maybe just add a little color to whether that's an incremental share gain or a customer that had left and come back or just a renewal of a customer that had already been with you?

Peter Kelly
CEO at OPENLANE

Yes, Craig, thank you. It's more a question of a customer that had left and come back. We don't typically talk about customer wins and losses, but I can recall in our prior earnings call that came up as a question with this specific customer. So it was probably four years ago. That customer left, so they've had three years on an alternative platform and this would be year four.

Peter Kelly
CEO at OPENLANE

They ran an RFP late last year. We were successful. So we will be onboarding that customer towards the end of this year. It won't have any real material volume impact in 2025. I want to be clear about that.

Peter Kelly
CEO at OPENLANE

In fact, we'll incur some costs in the implementation of the process in 2025. And again, that's reflected in our guidance. But the volumes will start to show up in 2026 and beyond. So I would consider that incremental share at this point, although it was a win back from four years ago, let's say.

Craig Kennison
Director of Research Operations & Senior Research Analyst at Baird

Thank you. And then Peter, just a few moments ago in response to another question, you talked about integrating commercial inventory on the dealer platform. Can you just shed a little more light on exactly what that means?

Peter Kelly
CEO at OPENLANE

Yes. Thanks, Craig. So, again, the focus here being innovation, making the process easy and how our combined platform as we integrate these digital assets enables us to sort of innovate faster, move faster, etcetera. So let me touch on two sides of that. So first of all, just over a year ago when we launched the Open Lane marketplace brand in The U.

Peter Kelly
CEO at OPENLANE

S, that's when we integrated the commercial off lease inventory when it hits the open cycle, okay, the open part of its lifecycle into the up to that point was the backlog cars marketplace and then we rebranded all of that to Open Lane. That was our Open Lane launch. So what we've seen since then frankly, Craig, first of all, we've seen a significant increase in the volume of vehicles being purchased by franchise dealers and that's very encouraging. It's also understandable because these off lease vehicles would typically appeal more to a franchise dealer audience. But we've seen strong growth there and continuing growth in terms of the numbers of franchise dealers that are logging on as buyers in our open lane marketplace.

Peter Kelly
CEO at OPENLANE

So obviously that's a positive we want to keep that going. What we launched with one app here just last month, what that did, Craig, was we when a dealer logs on to the Open Lane marketplace or the Open Lane app on their phone, if they're a franchise dealer and they have access to the private labels, let's say they're a franchise that has that we support their brand and that's obviously the majority of franchise dealers out there, they can find within the app a seamless single sign on log in to their private label. So to some extent, we're trying to make that app sort of an anchor point for the dealer, so that they can launch into their private label, but also they can buy cars in the open and of course they can sell. So that was kind of what the thinking behind the one app and that's now live with our customers and we're excited about that.

Craig Kennison
Director of Research Operations & Senior Research Analyst at Baird

Stephanie.

Peter Kelly
CEO at OPENLANE

So I think yes, hopefully that explains it for you, Greg.

Craig Kennison
Director of Research Operations & Senior Research Analyst at Baird

Yes, it does. Thank you.

Peter Kelly
CEO at OPENLANE

Welcome.

Operator

And the next question will be from John Murphy from Bank of America. Please go ahead.

John Murphy
John Murphy
Managing Director at Bank of America Merrill Lynch

Good evening, everybody. Peter, and I think it's Ryan. When we look at the adjusted EBITDA for 2024 full year, you'd mentioned the key was 2% to 3%. So if you adjust sort of the midpoint of that, you get about $286,000,000 of EBITDA sort of the base versus the $290,000,000 to $310,000,000 or sort of $300,000,000 at the midpoint. So it indicates about 5% organic EBITDA growth.

John Murphy
John Murphy
Managing Director at Bank of America Merrill Lynch

Could you just kind of talk about between marketplace and AFC, where you see sort of that growth coming from? Because it sounds like, I mean, from a volume perspective, there's going to be some challenges. And without that volume, AFC might not actually see that much loan growth. So just curious between the two segments where you think that 5% EBITDA growth will come from and how it will be generated?

Peter Kelly
CEO at OPENLANE

Yes. Well, thanks, John. So let me comment first of all on the guidance at a sort of high level, then I'll get a little bit more into the details of your question as well. So first of all, in terms of the guidance overall, there are four factors I think of and Brad referenced them, I'll just repeat them here in terms of how to think about our guidance. One is sale of the automotive key business, you're right, 2% to 3% of revenue, 2% to 3% of last year's EBITDA.

Peter Kelly
CEO at OPENLANE

That's obviously taken out of our guidance. You've done that math already. I think the strong U. S. Dollar has created a little bit of a headwind on some of our Canadian and European profits, okay?

Peter Kelly
CEO at OPENLANE

I don't overstate that, but you can do the math on that, but there's a little bit of a headwind there reflected in that. And then I think the one you mentioned, commercial volume headwinds, for sure, we recognize going in this is a year of lower off lease maturities, so that's been reflected. And then finally, increased investments in The U. S. Go to market.

Peter Kelly
CEO at OPENLANE

We made some investments in late Q2. We added a little addition to that in late Q4. We will have the full year sort of carry of those investments through all of 2025. Notwithstanding that, we forecast a a strong year of with increased EBITDA despite that headwind on the commercial side. So I feel really good about that.

Peter Kelly
CEO at OPENLANE

In terms of contribution, I would say most of the incremental dollars in our model are on the marketplace side, okay? So we'll see how the year plays. I was pleasantly I won't say surprised, but I was pleased with the AFC performance we saw in the fourth quarter. But in terms of our guidance, I'd say most of that gain would be on the marketplace side of the business. That's right.

John Murphy
John Murphy
Managing Director at Bank of America Merrill Lynch

Okay. And then just a second question, I mean, you keep talking about sort of changes to the product in one app and sort of how you're marketing going to market to the customer. When you talk about the technology, some of it sounds very intuitive in that idea of baking in the closed private label auctions into the app. So it's one entry point in one place or landing spot for the dealer. It sounds like it's very intuitive and makes a lot of sense.

John Murphy
John Murphy
Managing Director at Bank of America Merrill Lynch

But is there any confusion in the market as you're changing this technology with dealers that are literally just trying to buy and sell at a wholesale level and then buy and sell on the or sell, I should say, on the retail side? And is there any kind of growing pains as you're kind of making these adjustments? Or are the dealers very receptive and tech savvy, maybe even more so than a dumb auto analyst might be, to kind of absorb these things and really leverage the power in doing so? Because some of it sounds confusing, some of it actually sounds very exciting. I'm just curious what their aptitude is for really leveraging the tech?

Peter Kelly
CEO at OPENLANE

Yes. John, it's a very good question. And I guess what here's what I'd say. First of all, dealers give us high marks on the ease and simplicity of our platform to use. Like when we talk to our dealers, a lot of dealers tell us, your marketplace from a use perspective, it's my favorite one of all because it's so easy to use.

Peter Kelly
CEO at OPENLANE

So there's a lot of sort of sophistication behind the scenes. We try to make the experience very easy. Do we succeed all the time? Perhaps not, but I think we do pretty well on that front. Now the downside of that, John, is theater they build a habit of the app works like this and the buttons are here and I know how to use it and it's almost second nature.

Peter Kelly
CEO at OPENLANE

So when you change stuff, you'll typically get a range of feedback. Some maybe early adopters will love it and some people are like, what just happened? So you got to be careful on that. I think we try to be very thoughtful about that. We try to do AB testing.

Peter Kelly
CEO at OPENLANE

We try to roll out a new feature to a smaller audience first and iterate through it and do all those types of things. So, yes, I think we've got to be careful about moving people's cheese. I think that's the expression. I will say though, I mentioned that dealer in the Midwest who said he'd never heard about Open Lane until six months ago. The odd thing about that dealer, that dealer had been buying on a private label side of ours for probably over a decade.

Peter Kelly
CEO at OPENLANE

He just didn't know it was Open Lane because it was branded as an OEM, right? And Open Lane was sort of invisible in that process. But we knew that customer, right? So what we're trying to do, John, with some of these changes and enable is kind of bring have these sort of dealers realize, oh, this is a company I'm well aware of, I've been doing business with them, I've had a good experience for a long time, oh, and now I've got the opportunity to sell my wholesale units to them, and that's part of our sort of go to market angle as well.

John Murphy
John Murphy
Managing Director at Bank of America Merrill Lynch

And then just that's helpful. Then just one last question. You're talking about dealer to dealer quite a bit, which makes obviously a ton of sense as a growth area. But I've never really heard you guys draw a line of demarcation of what percent is or what portion is franchise dealer versus independent used car dealers. And it sounds like the franchise dealers are growing part of the pie maybe on the buy and sell side.

John Murphy
John Murphy
Managing Director at Bank of America Merrill Lynch

I mean, is there any kind of dimension you could give us there on the growth between the two or how much franchise is driving the growth versus the independents?

Peter Kelly
CEO at OPENLANE

We don't break it out, pardon fast, John, but I'd say, to give you sort of rough understanding of it, the commercial volume that we sell, most of that volume is purchased by franchise dealers. You could say 70 ish percent of the commercial cars we sell is purchased by franchise dealers. Within the dealer to dealer market, most of the volume offered for sale is from franchise dealers. And when I say most, 70%, eighty %. And most of the volume purchased is purchased by independent dealers.

Peter Kelly
CEO at OPENLANE

And again, 70%, eighty %. That's rough math, but that's directionally accurate enough for to give you an understanding of the business.

John Murphy
John Murphy
Managing Director at Bank of America Merrill Lynch

But is there an opportunity on the franchise dealer side to increase that, even potentially even more on the buy side of the equation?

Peter Kelly
CEO at OPENLANE

On both. I mean, there's an opportunity to increase it on the sell side for sure and obviously on we would hope on the buy side as well. Yes. Okay.

John Murphy
John Murphy
Managing Director at Bank of America Merrill Lynch

All right. Very helpful. Thank you.

Peter Kelly
CEO at OPENLANE

Thank you, John.

Operator

The next question is from Bret Jordan from Jefferies. Please go ahead.

Bret Jordan
Managing Director at Jefferies LLC

Hey, guys. Hi, Bret.

Bret Jordan
Managing Director at Jefferies LLC

As you look at 25 and I guess with a couple of new entrants in the auction space that used to be primarily Salvage and the other legacy whole car guys. Do you see the environment becoming more competitive, I guess, from a promotional standpoint or just the struggle for market share and what's at least in the commercial side sort of cyclically pressured? Or is the current state of competition sort of what we could expect to be seeing through 2025?

Peter Kelly
CEO at OPENLANE

Yes, Brett, we don't want to comment on any one specific competitor. I actually don't see it like you see it. I actually see it maybe the opposite that the choices are being maybe more clarified for customers. But we'll see. But I guess here's what I would say.

Peter Kelly
CEO at OPENLANE

First of all, when I think about our company Open Lane, I feel really good about the positioning that we have. I think our positioning actually is better than ever, both whether it's with commercial sellers or with franchise dealers or independent dealers. And I think that's also reflected not just in our own internal surveys, but through some third party surveys as well asking dealers who are your most preferred wholesale auctions. Open Lane has been rising the ranks. And we've only been in market in The U.

Peter Kelly
CEO at OPENLANE

S. Again with the Open Lane brand for sixteen months. So I feel good about that. I feel good about our strategy, delivering the better marketplace, delivering better technology and improving the customer experience. I think we've got a really strong differentiation on the commercial seller side.

Peter Kelly
CEO at OPENLANE

We are the leader with off lease remarketing. 2025 will be a challenge, but those volumes are going to grow in 2026, '20 '20 '7 and beyond. We're a leader there. That's going to be a strong source of differentiation for our company, but also a strong source of volume growth as well. And I feel like our dealer to dealer offering is stronger than it's ever been.

Peter Kelly
CEO at OPENLANE

I think we're getting better outcomes. We're seeing more customers participating. And I think, again, like I said in our remark earlier, we're a relatively small market share in a big TAM, but we've got a really strong offering. So I think viewed over the long term, we're going to grow our volume and gain share in that category. So listen, I'm focused on what we offer and I'm feeling really good about what we offer vis a vis what competitors might offer at the present time.

Bret Jordan
Managing Director at Jefferies LLC

Okay. And I guess within just from a modeling standpoint, in 'twenty two, lease originations troughed. Is there any notable quarter that had the least? Or was it just sort of low lease originations through the year just given the shortage of supply?

Peter Kelly
CEO at OPENLANE

Well, the

Peter Kelly
CEO at OPENLANE

if we

Peter Kelly
CEO at OPENLANE

looked at the year the quarterly year on year decline in lease originations, they were sort of at their max in Q1 and Q2 of twenty twenty two, okay? And then they started to diminish in Q3 and Q4, And then they I believe they returned to growth in Q2 of twenty twenty three. So we kind of take a roughly three year lag to that to think of our maturity profile. And then the wild card in there is if the consumer payoff percentage which has been declining slowly, it hasn't declined, it's still way higher than it was pre COVID, okay, I want to be clear about that, but it has been declining modestly. If that continues to decline that could cause a little acceleration in some of these in some of the pace of return.

Peter Kelly
CEO at OPENLANE

But I don't want to sort of place a bet on that at this moment in time.

Bret Jordan
Managing Director at Jefferies LLC

Do tariffs change the consumer payoff if the cost of a new vehicle goes up by $5,000 because of on average because of tariffs? Does that do you think that drives up the underlying used value and creates a more attractive buyer?

Peter Kelly
CEO at OPENLANE

It probably doesn't help to be honest, Brett. Like I think if new vehicle values go up by x, you could probably assume used vehicle values go up by about half of x. The off lease equity gap has been narrowing, and that's leading to some this consumer payoff percentage declining, which is what I referenced. But that trend might cause a bit of a delay to that. I don't think it changes the overall narrative, but it might just push it out a quarter or something like that.

Peter Kelly
CEO at OPENLANE

But yes, we'll have to see how that plays.

Bret Jordan
Managing Director at Jefferies LLC

Thank you.

Peter Kelly
CEO at OPENLANE

You're welcome, Brett.

Operator

And ladies and gentlemen, this concludes today's question and answer session. I will turn the conference back to Peter Kelly for any closing remarks.

Peter Kelly
CEO at OPENLANE

Well, thank you, Chad, and thank you everybody for your questions and your continued interest and support of Open Lane. As I mentioned during the call, I believe we've entered 2025 with positive momentum. Our marketplace is well positioned for long term sustained growth in both dealer and commercial. We have a category leading finance business, and we're continuing to extend our technology advantage on multiple fronts. So I remain very optimistic for Open Lane's future, and I look forward to updating you on our progress and our first quarter performance later this spring.

Peter Kelly
CEO at OPENLANE

Thank you, everybody. Have a good evening.

Operator

And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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