OPENLANE, Inc.

Good day, and thank you for standing by. Welcome to the Car Auction Services Incorporated fourth quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to Mike Eliason, Treasurer and Vice President of Investor Relations. Please go ahead.

Thanks, Norma. Good morning and thank you for joining us today for the CAR Global fourth quarter 2021 earnings conference call. Today we'll discuss the financial performance of CAR Global for the quarter ended December 31st, 2021. After concluding our commentary, we will take questions from participants. Before Peter kicks off our discussion, I'd like to remind you that this conference call contains forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties that may affect CAR's business, prospects, and results of operations. and such risks are fully detailed in our SEC filings. In providing forward-looking statements, the company expressly disclaims any obligation to update these statements. Let me also mention that throughout this conference call, we will be referencing both GAAP and non-GAAP financial measures, reconciliations of the non-GAAP financial measures to the applicable GAAP financial measure can be found in the press release that we issued yesterday, which is also available in the investor relations section of our website. Now I'd like to turn this car over to Carglobal CEO, Peter Kelly. Peter?

Thank you, Mike. And good morning, ladies and gentlemen. I'm delighted to be here this morning with all of you to provide an update on our performance at Carglobal. So on this morning's call, I plan to speak about our fourth quarter results. I will provide an update on volume trends in our industry, particularly volumes from commercial sellers. I'll provide updates on the continued growth of our Dealer-to-Dealer business, and specifically our record quarter in the Dealer Off-Premise volume sold on our digital platforms. I will also provide an update on our acquisition of Carwave and the solid performance of our finance business, AFC. I will close out with some updates on our cost structure. So I'll start with an update on our fourth quarter performance. While commercial seller volumes remained a challenge in Q4, I was pleased with our performance in the face of that challenge. We achieved the following results in the quarter. For car overall, we generated $549 million in revenue. That was an increase of 4% from Q4 of 2020. We generated total gross profit of $226 million, an increase of 11% from Q4 of the prior year, and this gross profit represented 49.7% of revenue excluding purchased vehicles, or net revenue. We generated 97.9 million of adjusted EBITDA. That was an increase of 45% from the same quarter prior year. Cash generated from operations for the quarter was $61 million, and for the full year, cash generated from operations was $413 million. Within the ADESA segment, we facilitated the sale of 543,000 vehicles, representing over $9 billion in gross auction proceeds. Those volumes were down 20% versus Q4 of the prior year, and this was driven mainly by the continued strain on commercial seller volumes, which were down 44% versus Q4 of the prior year. In our dealer consigned business, however, volumes increased by 34% versus Q4 of the prior year, driven by strong double-digit growth in our digital dealer-to-dealer platforms. 53% of our total sales in Q4 were from off-premise locations. We sold 141,000 off-premise dealer vehicles in our digital channels. This is our highest single quarter to date for this metric. In fact, off-premise dealer transactions represented over 50% of our total dealer consignment transactions for the first time ever. And that is an important milestone in our ongoing digital transformation here at CAR. Across the Odessa segment, we generated $297 in gross profit per vehicle sold. This is also our best result with that metric in any quarter to date. This was higher than our gross profit per vehicle generated in the first half of 2021 and nearly 30% greater than the same quarter Q4 of 2020. I continue to be pleased with the performance and continued growth of our AFC business segment. AFC had 342,000 loan transactions in the fourth quarter. That was a 5% increase versus the same quarter per year. And that was also in line with levels that we had expected. Revenue per loan transaction was 25% higher than Q4 of prior year at $232 for the quarter. Key drivers of this were higher vehicle values and solid management of credit risk. So I'd like to turn and speak to the supply dynamics of used vehicles within our marketplaces, particularly those from commercial sellers. So as with the prior quarter, our volume challenge in Q4 was principally tied to the lack of commercial seller volumes across our various marketplaces. I believe that we're still at the bottom in terms of the disruption, with supply of off-lease vehicles and rental vehicles at physical auctions across our industry at all-time low levels in both categories. Most meaningful to CAR is the disruption in off-lease volumes, which historically have represented approximately 60% of our total commercial seller volumes. Volume of repossessed vehicles also remain below normal, but have remained relatively stable at about 60% to 70% of normal levels. Although volumes remain under pressure, our analysis of the quarter's results indicates that we've maintained our market share with commercial sellers, and in fact, we have slightly increased share with some customers. I believe that we're now starting to see the first evidence of the ingredients that are necessary for an improvement in volume in the commercial seller category. To start with, we're beginning to see a modest increase in new vehicle production, with an 11% increase in new vehicle production during Q4 within the NAFTA region versus Q3, I take that as a positive sign. This increased production is being reflected in a modest increase in new vehicle inventory at automotive dealerships. And while it's still well below historical levels, new vehicle inventory at dealerships increased by a little over 22% from the end of September to the end of January per industry reports. And again, I think that is a positive sign. We believe that this increased supply of new vehicles will ultimately drive a decline in the price of used vehicles, which, as you all know, have been very elevated over the past nine months. We are starting to see some evidence of this happening, and the start of 2022 has been characterized by a weaker pricing environment than we've seen in prior years. In fact, per the Black Book report, used vehicle values have weakened for the past seven consecutive weeks, and yesterday's report indicated that the downward trend has accelerated over the past week. And I would just say that this is quite unusual for this time of year in our industry. Given the high valuation levels of used vehicles right now, I expect values to continue to weaken over time, although I expect it may take some time for those prices to revert to what we would consider to be more normal levels. A decline in pricing environment is often characterized by lower conversion rates, as buyers refuse to step up and pay the higher prices that sellers have become accustomed to getting. And while lower conversion rates can cause some short-term pressure on gross profit, the long-term gain for car in terms of increased volume sold from commercial sellers within our marketplaces is very significant from various discussions with our customers in the off-lease repossession and rental segments most have signaled that they expect to remarket more vehicles in the second half of 2022 than they did in the second half of 2021. so in summary we expect that the current commercial seller volume constraints will continue to much of the first half of this year but we expect to see a modest improvement in the second half we expect to see an acceleration in that volume recovery in 2023 and beyond and again as i said on prior calls this would be very positive for car given our higher market share with commercial sellers and supporting this thesis you know i read another report yesterday that stated that automotive loan defaults have now increased for seven consecutive months in a row which is the longest consecutive streak in more than a decade. If this trend continues, that would also point to an increased supply of repossessed vehicles later this year. So I'd like to turn now to provide an update on our progress in the dealer-to-dealer vehicle category. First, if we look at our total dealer consignment volumes of car, both on-premise and off-premise combined, we sold 277,000 vehicles in the fourth quarter. That represents an increase of 34% compared to car's total dealer volume in Q4 of the prior year. Some of that increase is driven by the acquisition of carways, but I'm pleased that we were able to deliver a meaningful increase even without the carway of acquisition, particularly in the light of volume constraints across the industry. If we look at the dealer off-premise category only, our Q4 volume was 141,000 vehicles sold. That's our highest ever quarterage total. The comparable metric for Q4 of 2020 was 82,000. So we grew our total dealer off-premise volume by 72%. or 20% organic growth if you include backlog cars and car waves within both periods. If we look at our total dealer off-premise volumes for the year for 2021 overall, we sold 507,000 vehicles. That was an increase of 110% compared to the 241,000 we sold in the prior year. And again, adjusting for acquisitions, the pro forma annual growth rate was 34%. As I mentioned earlier, more than 50% of our total dealer consignment sales in the quarter were represented by off-premise transactions. We expect this percentage to increase further over time. In Canada, our trade rev business continues to perform very well, delivering strong volumes in a second consecutive quarter of solid profitability, with EBITDA per vehicle sold in excess of $100 for the quarter on that platform. This gives me increased confidence in the long-term profitability of the digital off-premise model. And finally, while my remarks above have been principally focused on our dealer off-premise category, I would also highlight that our dealer on-premise volumes for Q4 increased by 9% versus the same quarter prior year and increased by 5% for 2021 overall relative to 2020. So I'd like to spend a few moments on the acquisition of CarWave. We closed on our acquisition in early October. We've made good progress with the integration. Our initial focus has been on harmonizing our buyer and seller policies, and that will be completed within this quarter. We've also been focusing on developing a new enhanced vehicle condition report that combines the best of the car waves and backlots inspection reports into one unified format. Once those are complete, we will then move forward with a platform integration that will leverage the features and functionality from both offerings to provide our sellers and buyers with the best experience possible. Our teams are currently working on this. It's a high priority initiative for CAR and we expect to have it complete by the end of the third quarter. I'd like to spend a few moments on AFC. As I mentioned earlier, AFC performed well in Q4 and in 2021 overall. AFC has been able to grow its business in a disciplined way and also re-engineer its business processes to have a more efficient service delivery for its customers. This has also helped to improve margins and profitability. AFC continues to experience lower than normal levels of risk driven by current market conditions combined with strong operations. I expect to see continued strong and steady performance from AFC given the current environment. Eric will provide further updates on AFC in his remarks. I'd now like to spend a few moments talking about our cost structure. On recent earnings calls and again in our Analyst Day event, we have discussed our strategic focus on reducing our cost structure to reflect our transition to a more digital marketplace business. We continue to make meaningful progress on that front. In Q4, we completed our assessment of cost and revenue opportunities relating to four distinct aspects of our business. First, accelerating our sales and our go-to-market opportunities. Second, evolving our service operations. Third, focusing our technology investments. And finally, fourth, managing our SG&A. So our analysis indicates an opportunity in excess of $200 million in annualized benefit, which is a mix of revenue and monetization, which we believe represents approximately 40% of that total, and cost side opportunities representing the remaining 60% of that total. Over $100 million of this opportunity would be incremental to the analysis that we presented in our analyst day. We have started that implementation process, and in Q4 alone, we addressed cost and revenue opportunities that we believe will represent an annualized improvement of approximately $30 million. We have many additional initiatives in planning and early execution phases, and we expect to substantially execute these initiatives in 2022 and 2023. I would say that these initiatives represent a key priority for our business, and I will continue to report on our progress in future earnings calls. I also want to highlight some of the operational progress we made during the quarter that will continue to contribute to our future performance. We continue to focus our technology roadmap on the platforms that are the most strategic to our customers and also represent our highest opportunity for long-term growth. And we're taking active steps to better integrate and increase the attach rates of our supporting services, like financing and transportation, with every vehicle transaction. From discussions with various customers, we also know that some of our customers are looking to create more continuity between the retail and wholesale operations. We are well placed to support our customers in this, and we view these as opportunities to expand and grow our business over time. My last point this morning is to speak about 2022 and beyond. As discussed on our last call, it is difficult to predict the supply of vehicles in the wholesale market at this time. We withdrew our guidance in September, and I believe that we should not provide further guidance until our visibility into those volumes approves. I'm very encouraged by our performance in Q4. I believe that our Q4 results demonstrated that our business was able to deliver a significantly improved operating performance despite the historically low volumes. At the same time, I have to acknowledge that we and our industry are both starting 2022 with lower commercial volume supply than we started 2021. So those volume headwinds that we saw on Q4 didn't end on December 31st. I want to assure our shareholders that we're not just waiting for volume to return. We're highly focused on controlling what we can control and delivering strong performance across our business, focusing on maintaining and growing our market share, accelerating our higher growth segments, and transforming our cost structure for a digital future. The goal is to transform this business in this time of lower volume so that as volumes increase, they will flow through a more digital and more efficient model. And I believe we're making good progress in that. While we're not providing annual guidance on today's call, I believe that the framework for growth, as we presented on our analyst day in September, remains intact. And to repeat some of the key components of what that model represented, we believe that this business can deliver the following compound annual growth rates viewed over the period 2020 to 2025. 7% growth in net revenue, 15% growth in adjusted EBITDA, and over 20% growth in operating adjusted net income per share. In addition, we believe that this business can deliver consolidated gross margins of more than 50%. And again, that's based on a percentage of net revenue. And finally, we expect that this business will continue to deliver strong cash flows, something that has always been a strength of the business. So I believe that our Analyst Day framework for 2025 remains intact and is achievable, and it is supported by the following factors. Firstly, I believe that we're on track to see a recovery in commercial seller volumes between now and 2025, consistent with what we presented. Secondly, our volume expectation in the dealer off-premise category is to achieve 1.2 million vehicles sold by 2025. That is approximately double our Q4 volume on an annualized basis. This part of our business has a strong forward momentum and growth rate, and I believe that doubling that business over the next four years is achievable. Third, our gross profit per vehicle sold, which was $297 in the fourth quarter, was materially higher than the $272 that we modeled into our 2025 and Analyst Day framework. So it may be possible that we could have some long-term upside on this important metric that will drive performance. And finally, as I mentioned on this call, our opportunity for cost and efficiency improvements exceeds the amount that we had modeled into our analyst day models. So to summarize my key messages for today, I was pleased with our Q4 results, which were delivered in the face of an unprecedented challenge with commercial seller volumes. We delivered our best ever quarterly performance in terms of gross profit per vehicle sold. We increased our adjusted EBITDA by 45% versus Q4 of the prior year, despite 20% lower volume. We had our best quarter yet in dealer off-premise transactions. And for the year, we sold over half a million dealer-consigned vehicles in our dealer off-premise channels. Our AFC business continued to perform at a very high level. Our assessment of the cost opportunities exceeds that which we previously communicated. We have started to take action on those opportunities, and there is more to come. And finally, we are one quarter closer to the volume recovery that we know will come, and we're starting to see the first evidence of the ingredients that are necessary for that volume recovery. such as increases in new vehicle production, increases in dealer inventory, and declines in used vehicle pricing. When those volumes do return, we will be better positioned than we have ever been to support our customers and deliver a strong operating and financial performance at Carglobal. With that, Eric will now provide a more detailed review of the financial results for the quarter and 2021 overall. Eric.