Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Openlane Inc (KAR, Financial) reported a 7% increase in marketplace volumes, contributing to a 4% rise in consolidated revenue to $432 million.
- The company achieved $71 million in adjusted EBITDA, despite a $2 million charge from the newly enacted Canada Digital Services Tax.
- Openlane Inc (KAR) saw a 21% year-over-year growth in commercial volumes, marking the fifth consecutive quarter of growth in this segment.
- The company is leveraging its asset-light digital model to accelerate growth through innovations like Visual Boost AI and Code Boost IQ, enhancing vehicle inspection capabilities.
- Openlane Inc (KAR) is investing in customer experience improvements, including a redesigned marketplace search functionality, receiving positive feedback from customers.
Negative Points
- The newly enacted Canada Digital Services Tax resulted in a $12 million charge, impacting gross profit, with an ongoing annual cost estimated at $5 million.
- Dealer volumes declined, particularly in Canada, aligning with broader industry trends of declining wholesale dealer volumes.
- The company faces challenges from the CDK ransomware attack, which negatively impacted volumes by approximately 6,000 vehicles.
- Net revenue was down 1% due to a transportation accounting change, impacting net revenue by $21 million in the quarter.
- The provision for credit losses in the Finance segment was 2.1%, indicating ongoing challenges in managing credit risk.
Q & A Highlights
Q: How did the CDK ransomware attack impact dealer volumes, and how does this compare to digital competitors?
A: Peter Kelly, CEO, explained that the CDK attack affected both commercial and dealer volumes, with an estimated 50/50 split. Despite this, Openlane's dealer volumes slightly outperformed physical auction volumes in the U.S., suggesting a slight gain in market share. The company is optimistic about returning to year-over-year growth in the second half of the year.
Q: Are you effectively communicating your technology innovations like Visual Boost and Code Boost to dealers?
A: Peter Kelly, CEO, acknowledged a gap in understanding the strength of their technology offerings. Openlane is investing in training and go-to-market materials to better communicate these innovations. They recently held a DealerFest event to educate customers on new offerings.
Q: Can you provide more details on the off-lease vehicle mix and the normalization process?
A: Peter Kelly, CEO, noted that commercial volumes were up 21% year-over-year. The percentage of off-lease vehicles being returned is increasing, while fewer are being purchased by consumers or grounding dealers. This trend is expected to continue, potentially accelerating in coming quarters, which is positive for Openlane.
Q: How is the integration of Manheim Canada progressing, and is there an opportunity for real estate sales?
A: Peter Kelly, CEO, reported successful consolidation of operations in Canada, with strong customer retention, especially on the commercial side. Brad Lakhia, CFO, mentioned an active project to monetize real estate acquired in the transaction, though specifics on timing and amount are not yet available.
Q: What are your expectations for marketplace segment margins in the second half of the year?
A: Brad Lakhia, CFO, explained that margins were impacted by a $12 million charge related to the Canadian Digital Services Tax. Excluding this, margins are consistent sequentially. The company expects SG&A to remain stable, with ongoing investments in technology and go-to-market resources.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
