Q2 2024 Earnings Summary
- Significant increases in new vehicle lease originations over the past five quarters are expected to result in higher off-lease volumes flowing into OPENLANE's marketplace after approximately 18 months, providing a positive future revenue stream.
- The successful integration of the Manheim Canada acquisition has led to operational consolidation, greater scalability, strong customer retention, and organic growth in commercial volumes in Canada, positioning the company for improved performance in the second half of the year.
- OPENLANE's marketplace is efficient and cost-effective compared to physical auctions and competitors, resulting in a profitable and growing dealer-to-dealer business that is significantly more profitable than two years ago. This efficiency allows for attractive pricing, aiding in market share gains and overall growth.
- Dealer volumes declined in the quarter, especially in Canada, which could impact future growth prospects. Despite expectations of improvement, the decline suggests challenges in the dealer segment.
- Off-lease volumes remain about 50% below pre-pandemic levels and are expected to stay under pressure over the next 18 months due to low lease originations in 2021 and 2022. This could limit growth opportunities in the commercial segment.
- Credit loss rates in the Finance segment (AFC) are higher than target levels, indicating increased risk in the loan portfolio. Proactive removal of higher-risk customers may affect loan growth and profitability.
-
Off-Lease Volumes
Q: How are off-lease volumes trending and what's the outlook?
A: Commercial volumes grew by 21% in the quarter, marking five consecutive quarters of growth. Although off-lease maturities are lower, a higher percentage of vehicles are being returned rather than bought out by consumers or dealers, positively impacting volume. Lease originations have increased for five consecutive quarters, which is expected to benefit the company in 18 months' time.
-
Marketplace Margins
Q: What's the outlook for Marketplace segment margins?
A: Gross profit margins were affected by a $12 million charge, but normalizing for this, margins are consistent with previous quarters. Adjusted EBITDA margins remain steady, and the company expects stable margin performance moving into the second half.
-
Market Share Gains
Q: Are you gaining market share across auction channels?
A: The company has maintained or slightly increased market share. In the U.S., dealer-to-dealer volumes are outperforming physical auction volumes, with a stronger relative performance.
-
Manheim Canada Integration
Q: How is the integration of Manheim Canada progressing?
A: The integration is going well, with operations consolidated in all five metro areas, leading to greater scalability. Customer retention, especially on the commercial side, has been strong. An active project is underway to monetize some real estate acquired in the transaction.
-
AFC Customer Base
Q: Has the AFC customer base changed, and what's the impact on credit risk?
A: The company has proactively managed risk by reducing exposure to higher-risk customers over the past 12 to 18 months. Despite normal customer churn, unit volumes continue to grow, and the business remains highly profitable with attractive margins.
-
Go-to-Market Investments
Q: Will increased go-to-market resources impact expenses and returns?
A: The investment in go-to-market resources is not significant in the overall SG&A structure. These investments are expected to drive incremental volumes in the second half and into 2025, with some immediate impact but larger returns over time.
-
Competitor Price Increase
Q: Did you follow a competitor's digital price increase?
A: The company is aware of the competitor's price increase and is reviewing its own pricing strategy. It believes in offering an efficient marketplace with attractive pricing and will react appropriately.
-
Technology and Marketing
Q: Are dealers aware of your technology innovations?
A: There may be a gap in understanding of the company's technological strength. Efforts are underway to educate dealers through training, testimonials, and events like Dealer-fest to showcase new offerings.
-
CDK Outage Opportunities
Q: Does the CDK outage create new opportunities for you?
A: The company's systems were robust and unaffected by the CDK outage. This highlights the importance of information security and presents opportunities to expand product offerings that streamline the wholesale process for dealers.
-
U.S. D2D Growth
Q: How did U.S. dealer-to-dealer volumes perform?
A: U.S. dealer-to-dealer volumes were stronger relative to the overall market, outperforming physical auction volumes. An improving trend was observed over the quarter, setting up a positive outlook for the second half.