OPENLANE, Inc.

Good morning and welcome to the CAR Auction Services, Inc. 2023 First Quarter Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your touchtone telephone. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mike Eliasson, Treasurer and Vice President, Investor Relations. Please go ahead.

Thanks, Andrew. Good morning, and thank you for joining us today for the CAR Global first quarter 2023 earnings conference call. Today, we discussed the financial performance of CAR Global for the quarter ended March 31st, 2023. 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'll 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. I'd like to turn this call over to Carglobal CEO, Peter Kelly.

Peter? Thank you, Mike, and good morning, everybody. I'm delighted to be here this morning to provide you with an update on Carglobal, which, as we announced in a press release last night, will soon be known as Open Lane Inc. Given that announcement, we will be structuring today's call a little differently than usual. I will begin by providing additional information relating to our first quarter performance and the current market factors impacting the automotive industry. We will then turn to a more in-depth discussion of our financial performance in the quarter. And then before we move to Q&A, I will walk through a few slides detailing our open-lane brand transformation and platform consolidation strategy. But before I get started, I want to welcome our new Chief Financial Officer, Brad Lakia, to the call and to our company. As we detailed in our announcement a few weeks ago, Brad brings a lot of great experience to our management team. And I'm very much looking forward to working with him to help grow this company and deliver excellent stockholder value. So Brad, welcome to Openly. Brad is only two weeks on the job, so Scott Anderson, who served as our interim CFO for the past quarter, will deliver the remarks for the financial portion of the call in just a few minutes. So let me turn to our first quarter performance. And as usual, I'm going to speak about our business in two segments, a marketplace segment and a finance segment. I'm very pleased with our solid performance in the first quarter and the improvement we achieved over the prior year, including double-digit growth in revenue, growth profit, adjusted EBITDA, and operating adjusted earnings per share. These results are consistent with the expectation that we discussed on last quarter's call of 15% to 20% growth in adjusted EBITDA over the next several years. And I'm particularly pleased that we achieved these first quarter results despite an industry environment where volumes remain tight. During the quarter, we also continued to make solid progress on our strategic initiatives, managing our costs, integrating our platforms, and simplifying our business. The brand change that we just announced will help further align and unify these initiatives, and I'll discuss that in more detail later on this call today. So, to summarize our key results for the first quarter, we generated approximately $421 million in revenue, a 14% increase versus Q1 of last year. Purchased vehicle revenue represented 13% of total revenue in the quarter. We generated total gross profit of $196 million, an increase of 24% from Q1 of the prior year. Gross profit represented 54% of revenue, excluding purchased vehicles. And we generated adjusted EBITDA of $59 million in the first quarter. This represented an increase of 20% versus Q1 of last year. However, this included an 11 million one-time charge related to an investment in an early-stage automotive company. Excluding this one-time charge, adjusted EBITDA would have been $70 million in the quarter, and that would have been an increase of 42% versus Q1 of last year. This led to operating adjusted earnings per share of $0.12, more than double our operating adjusted EPS performance in the same quarter of last year. I was also very encouraged to see that the marketplace segment of our business contributed meaningfully to our Q1 consolidated results and led our improved performance compared to Q1 of last year. From a volume standpoint, we sold 330,000 vehicles in the first quarter. Approximately 51% of this was from commercial sellers and 49% of it from dealers. While this volume represented a decline of 6% versus Q1 of last year, I would point out that this decline was the lowest in percentage terms in well over a year. Sequentially, it was a volume increase of 14% compared to Q4 of last year, and that was also the best sequential volume performance for well over a year. The marketplace segments delivered strong revenue growth of 13% in the first quarter. The revenue growth was driven by strong auction fees per vehicle sold and solid growth in services revenue, which was driven by service attach rates and growth in services revenues that were not directly tied to vehicles sold. Marketplace gross profit performance was also drawn, increasing 27% year-on-year and representing 35% of revenue. That was a 400 basis point increase compared to Q1 of last year. Excluding revenue from purchased vehicles, gross margin in the marketplace segment was 43% of revenue. Our cost management efforts are also reflected in the fact that marketplace segment SG&A declined year-on-year. So taking all those factors into account, the marketplace segment delivered adjusted EBITDA of $14 million in the quarter. However, I would point out again that this is inclusive of the $11 million one-time charge that I mentioned earlier. Excluding that one-time charge, the marketplace adjusted EBITDA would have been $25 million in the quarter. So I believe that these results provide some solid evidence that the volume challenges are bottoming out and also clearly demonstrate their efforts to operate a more efficient and effective marketplace businesses are bearing fruit. Both of those are very positive for our company. In the finance segment of our business, Q1 revenue was $100 million. That was an increase of 18% over Q1 of last year. This was driven by a 13% growth in transaction volume and a 5% increase in revenue per transaction to $237. Adjusted EBITDA was $45 million. This was down, sorry, adjusted EBITDA on the finance segment was $45 million. This was down $5 million versus Q1 of last year and reflected credit losses returning to a more normalized range compared to the below normal levels that we experienced in 2021 in the early part of last year. As I mentioned before, cost management remains an important part of our focus here at CAR, and I believe that our cost management work is showing up in improved gross profit margins and reduced SG&A expenses. In Q1, we made meaningful progress on a number of areas, including the acceleration of our global shared services model. In Q1, total SG&A declined $11 million, or 9% compared to Q1 of last year. And we still have a pipeline of initiatives we're working on to further streamline our business. I'd now like to provide a few brief updates on the macro environment. First, new vehicle production was up in the first quarter of 2023. Additionally, recent reports suggest that new vehicle inventory on dealer lots increased during the quarter, and this was coupled with an increase in new vehicle sales. These factors are necessary ingredients to the balancing of supply and demand in the used vehicle market over time. Shifting to used vehicle values, as expected and as we discussed on our last call, the used vehicle price declines that were witnessed in the second half of last year reverted to used vehicle price appreciation in the so-called spring market. The level of first quarter price appreciation was quite strong, but the week-on-week increases in used vehicle values appear to have plateaued, and I think we may start to see some downward pressure on used vehicle values as the year progresses. We are not yet seeing any meaningful increase in off-lease volume supply, though some customers have communicated optimism that we will begin to see some increases as we head towards the second half of this year. We also have had feedback from customers that they expect to see increased incentives on new vehicle sales, And this could lead to increased volumes of leasing originations compared to last year as the year progresses. So we will continue to watch that carefully also. With all that said, I believe that the two primary theses of our growth equation remain intact. First, we believe that digital channels will continue to gain share and we're very well positioned to gain more of that additional share over time. We also believe that over time there will be a recovery in commercial volume, which will result in increased volume in our marketplaces. And then finally, in the finance segments, we believe that current conditions point to what we would describe as a more normalized risk environment, not that dissimilar to what we experienced pre-pandemic. And we believe we can continue to manage a conservative portfolio and generate positive results in this environment. In terms of capital allocation, we will discuss this further during the financial portion of this call, but I would again like to highlight the strong cash flow characteristics of our business. This was evident again in Q1, where we generated cash flows of $96 million from operating activities. We believe that the company has a strong balance sheet, an historically low leverage ratio, and ample liquidity. We're now going to turn to a deeper dive on some of our first quarter financial results. And as I mentioned earlier, Scott Anderson will deliver those remarks. I want to acknowledge Scott, not just for his many years of important service to this company, but also his good work in keeping our finance teams and functions running smoothly throughout our recent CFO transition. Scott, I appreciate you, and I know this will be an important member of the team here at OpenLand going forward. Scott?