Q3 2024 Earnings Summary
- Growing Dealer Volumes and Market Share: OPENLANE is experiencing significant improvement in dealer volumes, with a 6% total volume growth in the third quarter, marking the sixth consecutive quarter of year-on-year growth. The company believes it is gaining market share in dealer-to-dealer volumes, particularly in the U.S., and is seeing increased marketplace participation with growth in both sellers and buyers. ,
- Effective Pricing Strategy Enhancing Revenue: OPENLANE has demonstrated pricing power by implementing price increases in both Canada and the U.S. These price adjustments are expected to have a positive impact on revenues in the fourth quarter and throughout 2025. The company remains competitively priced and continues to focus on delivering value to customers, signaling potential for improved financial performance.
- Strong Performance and Value of AFC: The company's finance segment, AFC, is a strong, high-performing business with a leading market position. AFC generates significant adjusted EBITDA and cash flow, and OPENLANE plans to provide enhanced disclosures to highlight AFC's value, which could lead to a better market valuation of the business. Additionally, AFC's risk metrics are improving, and despite industry concerns, they are not seeing distress among dealers, indicating stability and potential for growth in this segment. ,
- Expected headwinds in 2025 due to lower off-lease volumes may negatively impact OPENLANE's commercial volumes and growth prospects. Peter Kelly acknowledges that 2025 might be a tough year for the commercial side, with off-lease volumes not materially growing until 2026 and beyond.
- AFC (Auto Finance Corporation) is experiencing flat loan transaction units and a decline in finance segment revenue, primarily due to independent dealers being more disciplined with inventory levels. Brad Lakhia notes that this volume challenge is expected to persist at least through the early part of 2025.
- The departure of CFO Brad Lakhia may lead to uncertainty in financial leadership during a critical period for the company. Brad announced his decision to leave OPENLANE, which could impact investor confidence and strategic financial planning.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted EBITDA | FY 2024 | $285 million to $305 million | $285 million to $295 million | lowered |
-
2025 Volume Outlook and Potential Headwinds
Q: Can you grow volumes in 2025 despite headwinds?
A: Peter Kelly acknowledged that lower off-lease maturities in 2025 present headwinds, but he believes they can still grow volumes. He expects the payoff rate for leases to decline, which could offset lower maturities. In Q3, they grew commercial volumes despite challenges. They plan to lean into dealer volumes and anticipate significant improvements in 2026 when more leases return. -
Pricing Strategy and Price Increases
Q: What's your approach to pricing and recent increases?
A: Peter Kelly emphasized their focus on creating value through speed to sale and cost efficiency. Their prices are at or below alternatives, with some headroom. In September, they implemented a price increase in Canada to reflect the digital services tax. Recently, they increased prices in the U.S. open marketplace, which will benefit results in Q4 and all of 2025. -
Dealer Volumes and Market Share Gains
Q: How are dealer volumes and market share trending?
A: Dealer volumes improved in Q3, showing a substantial positive swing versus the first half of the year. OPENLANE believes they are gaining market share in open sale transactions compared to dealer transactions at auction net. They saw growth in marketplace participation, with increases in both sellers and buyers, particularly on the buy side. -
AFC Risk Metrics and Performance
Q: Any concerns about dealer financing and AFC performance?
A: Peter Kelly stated they are not seeing issues; risk metrics at AFC are improving. Used vehicle values have stabilized, enhancing the risk profile. AFC had a strong quarter with $39 million of adjusted EBITDA. They continue disciplined underwriting and strong risk management with close customer relationships. -
Volume Ramp and Used Vehicle Supply
Q: When will volume ramp with improved vehicle supply?
A: Peter Kelly is pleased with six consecutive quarters of volume growth. Dealer inventories have increased, making dealers more likely to trade marginal units, positively impacting dealer consignment. He expects commercial volumes to remain challenged into the end of 2025, with real acceleration in 2026 when more leases return. -
Dealer Participation and Recruitment Efforts
Q: Are you being proactive in dealer recruitment?
A: Peter Kelly confirmed they are being more proactive, investing in go-to-market resources. The word is getting out about the value of their platform. Since the brand transition to OPENLANE less than a year ago, they have seen positive impact. In Q3, they had tens of thousands of active dealers, with good growth particularly on the buy side. -
Mix of Off-Lease Auctions and ARPU
Q: How is the mix of off-lease auctions changing?
A: There is increased participation by franchise dealers as buyers in the open marketplace, leading to more off-lease vehicles selling in that channel. This benefits OPENLANE since the open channel is their highest ARPU revenue per unit channel. They are seeing a small uptick in blended ARPU across the off-lease category. -
AFC Valuation and Disclosures
Q: How do you view AFC's fair value?
A: Peter Kelly stated it would be inappropriate to comment on AFC's fair value but acknowledged they believe the market can better appreciate its value. They plan to provide enhanced information and disclosures in an upcoming session to highlight its strategic value, as AFC has become a larger part of OPENLANE's business.
Research analysts covering OPENLANE.