OPENLANE, Inc. Q2 FY2025 earnings call

Strategy Priorities - Focus on delivering the best marketplace (expanding buyers/sellers, diverse inventory), best technology (innovative products/services), and best customer experience (fast, fair, transparent). ### Marketplace Performance - GMV reached $7.5 billion, with 32% growth in dealer GMV. Dealer-to-dealer business saw 21% year-on-year volume growth, third straight quarter of double-digit increases. Unique buyers/sellers active increased, record vehicle inspections, North American dealer growth outpaced industry. - Technology - Continues to simplify technology, reduce costs, and increase speed to market. One app in US cross-pollinating commercial sellers/dealers. Absolute Sale feature supports majority US dealer transactions, generating $800 additional value per vehicle on average. - Customer Experience - Transactional NPS surveys rate OPENLANE in great to excellent range. Third-party survey shows OPENLANE is most preferred pure-play digital marketplace in US. ### Business Synergy - AFC and OPENLANE integration efforts ongoing. AFC provides liquidity to OPENLANE marketplace buyers. Cross-pollination projects expanding in North America, including cross-customer research, 2-way promotions, etc.

Consolidated revenues for the quarter were $482 million, representing 9% growth. Consolidated adjusted EBITDA was $87 million, up 21%. For the Marketplace segment, total GMV processed was $7.5 billion, with 32% growth in dealer GMV and commercial GMV essentially flat. Auction fees in the marketplace grew by 24%, while service revenues decreased by 3%. Adjusted EBITDA for the Marketplace segment was $45 million, up 36% with a 12% margin. For the Finance segment, average outstanding receivables managed was $2.3 billion, up 4%. Net yield was 13.6% consistent with last year. The Q2 provision for credit losses was 1.5%, and adjusted EBITDA for the Finance segment was $42 million, up 9%.

Revised full year guidance for adjusted EBITDA from $290 million - $310 million to $310 million - $320 million. Revised full year operating adjusted EPS guidance from $0.90 - $1 per share to $1.12 - $1.17 per share. CapEx guidance remains $50 million - $55 million. Back half expected to have deceleration in EBITDA due to market slowdown expectations, Q4 seasonality, and continued investments.

Market Uncertainty - Macro tariffs may be a headwind to total new vehicle retail sales in second half. ### Project Risks - Win-back customer onboarding project has risk. ### Preferred Shares - Series A preferred due in June 2026, uncertainty around addressing it.

Q: Congratulations on strong results, and welcome to Brad to OPENLANE. So really strong dealer volumes. And so I want to kind of dig down on that a little bit too. How are the volumes impacted kind of by the broader macro tariffs, et cetera? Was there a pull forward? Has there been delays? The industry is moving around a lot based on the macro. So maybe how did it impact the quarter? And how do you see that playing out for dealer volumes in the second half as well?

A: Yes. Thanks, Bob. Appreciate the question. Listen, I was really pleased with the dealer volume in the quarter, 21% year-on-year growth, our third quarter of double-digit growth in that category. And while we don't report geographically, geographical results strong in all markets, in all geographies. So really pleased with the quarter. And I attribute that growth really to, as I said on the call, to the strategy. The execution of the strategy, as we've outlined on previous calls, the consolidation of the brand to OPENLANE, simplifying, making this company easier to do business with, a focus on the customer experience and obviously, some of the technology investments that have improved absolute sale, improved condition reports, things like that. Those are truly beneficial to dealers. We hear that from our customers every day, how much they like those advancements. And then also the additional go-to-market resources. We increased investments in this area about a year ago. We're seeing the results of that. We're going to continue to be aggressive and to make investments to grow volume and share. So I feel really good about that. I think, again, as we've said, this is a large category. It's about 50% of the TAM is dealer-to-dealer, and it's still heavily physical. But I really do believe that the digital platform offers tremendous value to our customers. I think they're seeing that every day. And even with the volumes we did in the quarter, we're still a relatively small player in the context of the overall dealer-to-dealer TAM, around about 10%. So we've got a lot of opportunity there, and we're going to keep focused on that. To get to some of the points you mentioned, listen, I think there were 2 facts that are worth sort of remembering in the context of the quarter's results. There was -- at the very beginning of the quarter, there was that pull ahead of retail volume which was well reported in the industry when the tariffs were first announced, consumers rushed to dealerships to buy new cars. So that created strong retail sales in the sort of late March to mid-April period. I would say we got a small benefit from that. And then you may -- the audience may not remember this, but a year ago, in late Q2, there was the CDK outage, which depressed volume in late Q2 of last year. So I'd say we got a small on the margin benefit from both of those. That may be, in my mind, might account for 2% or 3% of the growth. But I still think without that, it was a very, very strong quarter in dealer volume growth. And I think the core drivers of that are strategic, not sort of those industry factors that you might have referred to.

Q: Congrats on the strong execution here. I had a question just on the second half guidance. I understand in the past you've taken a conservative approach. It still looks like you've maintained that approach. But I was curious with the deceleration embedded in the guidance on EBITDA, could you frame for us what you're expecting from a market standpoint? Are you expecting like a meaningful deceleration in growth? I know there's some tougher comparisons in the second half year-over-year. But curious if you could frame that for us? And also embedded in that, do you expect this double-digit type share gain trajectory to continue in that context?

A: Rajat, I'll take the first part of that, and I'll pass the share part over to Peter. So I appreciate the question on guidance. So yes, we did a lot of work sitting down doing our projections for the back half, and I mentioned in my prerecorded remarks. There's still a fair amount of uncertainty, even though some of that certainty has been decided in the first half. We looked out at a lot of the general consensus in the analyst community, and there's still a lot of expectations that there's some form of a slowdown in the back half coming. So we certainly wanted to factor that in as we sat down and projected our back half. There's another element that has to do with a little bit of a Q4 seasonality component. We'll typically see a little bit of a slowdown just based on the calendar in Q4. So between those 2 factors, that really drove what our top line and what our volume expectations look like for the back half. And then on top of that, I mentioned in my remarks, we are continuing to make some more of these investments in the back half. Peter just got done talking about some of our investments to fill out the buyer network. Yes, this is a great opportunity. We're getting a lot of traction out of those investments. So we want to keep that momentum going with those investments. So at the end of the day, we do see some form of deceleration in terms of EBITDA in the back half, but we think it's grounded in some pretty fundamental and pretty widely agreed upon expectations for volume in the back half, combined with us continuing to make some investments for the future. And I'll turn Peter over for the share gain question