Good day, and welcome to the OPENLANE Third Quarter 2023 Earnings Conference Call. Please note today's event is being recorded. I would now like to turn the conference over to Michael Eliason, Vice President of Investor Relations. Please go ahead, Sir.

Thanks, Rocco. Good afternoon, and thank you for joining us today for the OPENLANE Third Quarter 2023 Earnings Conference Call. Today we'll discuss the financial performance of OPENLANE for the quarter ended September 30, 2023. After concluding our commentary, we'll 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 OPENLANE'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 will 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 just issued, which will also be available in the Investor Relations section of our website. Now I'd like to turn this call over to OPENLANE's CEO, Peter Kelly. Peter?

Thank you, Mike, and good afternoon, everybody. I'm delighted to be here today to provide you with an update on OPENLANE. Joining me on today's call is our Chief Financial Officer, Brad Lakhia. I'm going to begin with OPENLANE's third quarter performance. As usual, I will speak about our business in two segments, our Marketplace segment and the Finance segment. I'm pleased with our Q3 performance, and I'm particularly encouraged by the improved performance of our Marketplace business despite the challenging industry environment. I believe our Q3 results present compelling evidence that we are successfully evolving our business model to meet the realities of today's market, while positioning OPENLANE for continued growth and expansion in the future. During the third quarter, we grew our transaction volumes in both our Marketplace and Finance segments. We grew total revenue and gross profit. We reduced our SG&A. We invested in technology innovation and product development, and we continue to generate strong cash flows in the business. While adjusted EBITDA has declined slightly, driven mainly by a return to historically normalized loan losses in our Finance business, OPENLANE's Marketplace business delivered its best quarter since the divestiture of the U.S. physical auctions. Brad will provide more detail around our specific performance later in the call, but I would like to highlight a few key results from OPENLANE's third quarter. First, growth in both commercial and dealer transactions increased total marketplace volumes by 8% to 339,000 vehicles, with a total gross merchandise value of approximately $6 billion. We generated year-on-year revenue growth of 6% to $416 million, with contributions from both our Finance and Marketplace segments. Auction fee revenue in the Marketplace segment grew by 15%. Gross profit in the quarter was $200 million, an increase of 9% from Q3 of last year. Gross profit represented 56% of revenue, excluding purchased vehicles. I'd like to specifically call out the Marketplace segment again, where we increased gross profit by 17% year-on-year, representing 46% of revenue, excluding purchased vehicles. OPENLANE generated adjusted EBITDA of approximately $68 million in Q3. $27 million was from our Marketplace segment, a 51% increase versus the third quarter of last year, and $41 million was from our Finance segment. I'm very pleased that the Marketplace business is now operating at an adjusted EBITDA run rate of over $100 million per year, and significantly stronger than one year ago. Also, it's notable that our Marketplace segment delivered approximately 40% of our total adjusted EBITDA performance in the quarter, significantly higher than last year. Over time, I expect the Marketplace segment will represent over 50% of total adjusted EBITDA performance for OPENLANE. Brad will discuss cash flow generation and capital allocation later in the call, but I do want to highlight the strong cash flow characteristics of our business that were again evident in Q3. OPENLANE generated cash flows of $74 million from operating activities in the third quarter. As I mentioned last quarter, the company has a strong balance sheet, an improved leverage ratio and ample liquidity to invest in innovation and growth, while still delivering profits and strong cash flows. I'd now like to update you on our efforts to simplify our business. OPENLANE is committed to making wholesale easy: easier for customers to do business with us and easier for our company to innovate and grow. A cornerstone of this strategy is a rebrand to OPENLANE and the corresponding work to consolidate our marketplace platforms. I'm very pleased that we're already seeing improvements to the customer experience, accelerated product development timelines and meaningful reductions in cost. To support this work, we performed extensive market research during the second and third quarters with more than 1,000 dealers across the United States and Canada, and the results are strongly aligned with our vision for OPENLANE. First, inventory selection is very important to our customers. Our combined OPENLANE marketplaces will offer a highly differentiated mix of off-lease inventory that is not available on any other digital or physical marketplace, and dealer-to-dealer inventory at every age, condition and price point. Another key theme from our customers was ease, and we are pleased to hear that our buyers and sellers find our platforms very easy to use. Once combined, the OPENLANE marketplace will offer the most flexible, multi-format marketplaces in North America, including time sales, bid-ask listings and live bidding auctions that take place nearly every day of the week. Finally, trust remains an important factor with our customers. We are highly focused on providing the most reliable condition reports, the most responsive customer service and the most dependable supporting services such as financing and transportation. I believe we're operating from a position of strength in these areas, but we will continue to invest to ensure our customer experience, like our inventory, remains a positive differentiator for OPENLANE. I believe our one marketplace strategy is highly aligned with the preferences of our customers, and I'd like to share some specific milestones that we achieved in the third quarter. Starting with Canada: our combination of the ADESA and TradeRev platforms into a single OPENLANE-branded marketplace is now complete and has been successful. The migration was initiated late in the second quarter. In Q3, our year-on-year volume growth in Canada outpaced the growth rate in our Marketplace business as a whole. Since launch, we have implemented additional enhancements to our search and filter capabilities, as well as to vehicle images, our buy and sell functionality and other aspects of the marketplace. I'm encouraged by how quickly we were able to develop, test and deploy these updates. This provides evidence of the direct relationship between simplifying our business and our ability to innovate and quickly respond to the preferences of our customers. Another benefit of consolidation is our ability to leverage the best products and features from across our different platforms. For example, on the first of November in Canada, we launched OPENLANE Pro, a successful TradeRev dealer program that will now be available to all Canadian dealers on OPENLANE. Participating dealers receive volume-based rebates and access to OPENLANE's digital pricing guides and other exclusive tools. For OPENLANE, this expands a successful offering that generates non-transaction subscription-based revenue streams and increases stickiness with our customers. Shifting to the United States: we are now only weeks away from launching our consolidated OPENLANE-branded marketplace in the U.S. This will combine the off-lease open sale inventory from our U.S. commercial sellers with a broad-based dealer-to-dealer inventory currently available on backlog cars. This will be a single, simplified online experience, with a number of sales formats to align with the buying habits of our dealers. By connecting these two marketplaces, buyers will have access to more diverse inventory and sellers will have more confidence that they are obtaining the best possible outcomes on their vehicles. One of the most promising benefits is directly connecting the buyer experience on open sale to the buying experience in OPENLANE, with the ease of selling vehicles in our marketplace. A significant portion of franchise dealers who have purchased inventory through our private label programs and our open sale do not yet sell vehicles with OPENLANE at the same volume levels. Through the new unified experience, those dealers can now purchase off-lease inventory while also seamlessly listing their own wholesale vehicles directly from their lot. We're excited to get this off the ground and believe this combined marketplace will be well received by our customers. Finally, in our international business, our rebrand to OPENLANE in Europe and the U.K. is on track to launch towards the end of this month. This rebrand builds on the consolidation of our Europe and U.K. technology platforms that was completed earlier this year. Our European business continues to perform well, and we believe OPENLANE has an opportunity to capture share by delivering a differentiated model to our growing base of customers in Europe. In summary, I'm looking forward to beginning 2024 with all of our marketplaces, all of our buyers, all of our sellers and all of our inventory together under the OPENLANE brand. Platform consolidation is not just about improving the customer experience and accelerating innovation. It also affords us a meaningful opportunity to reduce our costs by eliminating duplicative technology and avoiding the costs associated with maintaining older and sometimes outdated back-end systems. We're very focused on this and have appointed leadership to advance this consolidation effort. We're optimistic about what we can achieve in terms of cost reductions, efficiency and a more streamlined customer experience. Beyond platform consolidation, our cost management efforts extend to every department and team across our organization. During the third quarter, we reduced our total SG&A versus the prior year as well as sequentially, and we continue to work through our pipeline of cost-saving initiatives. It's clear to me that our focus on this area is positively contributing to overall performance, particularly the improvement in gross margins and our overall adjusted EBITDA growth. Ultimately, our cost-conscious culture will help create the financial headroom for innovation, which in turn will further accelerate growth and improve our overall performance. I'd now like to provide some updates on the macro environment and our perspectives on the industry outlook for the fourth quarter, 2024 and longer term. Our third quarter results were delivered against a backdrop of industry volumes that are still well below normal and well below pre-pandemic levels. However, we believe there is increasing evidence that industry volumes have bottomed out and are beginning to rebound, particularly as it relates to commercial center volumes. I believe this is supported by the following factors: new vehicle production, new vehicle sales and new vehicle inventory on dealership lots continue to increase. In fact, they continued to increase in the third quarter despite some disruptions from industry labor actions late in the quarter. While each individual metric remains below pre-pandemic levels, their collective improvement will help balance supply and demand in the used vehicle market over time. Shifting to used vehicle values, we continue to see downward pressure on prices in the third quarter, although the rate of price decline slowed, perhaps driven in part by the industry labor actions that I referenced. Now that those labor actions appear to have been resolved, we expect continued pressure on used vehicle prices through the end of the year. I remain optimistic about the resiliency of our asset-light model and our ability to deliver strong results irrespective of the environment. Based on our conversations with commercial customers and on the data that we analyze, we believe new vehicle lease originations increased by double-digit percentages in the third quarter compared to the same period last year. This is encouraging as increased volumes of off-lease vehicles will be a tailwind for us in the future as those leases mature. I would also point out that lease originations in the third quarter were still well below pre-pandemic levels. So we expect to see further increases over time. Despite the overall price decline for wholesale used vehicles, the majority of off-lease vehicles maturing today still remain in a strong equity position versus their residual values. However, this gap is narrowing. We saw a modest increase in off-lease volume supply in the third quarter, and this contributed to our overall results. Looking to the future, we expect to see a decline in the percentage of vehicles that are in a positive equity position. Should this happen, it will result in a lower percentage of vehicles being purchased by consumers over time and, consequently, more volume flowing into our OPENLANE marketplace. The precise timing around this is hard to predict, but it is something we are watching carefully. In summary, I believe the facts I described point to a slow but steady improvement in wholesale supply and an improving environment for OPENLANE. As I said last quarter, the two primary theses of our growth equation remain intact. First, digital channels will continue to gain share. Our recent dealer surveys support this and we believe our technology, inventory and customer experience will position us well to gain more share over time. Second, all signs point towards a recovery in commercial volume, which given our existing market share and deep commercial seller relationships, will result in increased off-lease commercial vehicles in our marketplaces in the future. In terms of our performance outlook for the remainder of this year, in our Marketplace segment, I expect OPENLANE's volumes in the fourth quarter to increase compared to the fourth quarter of last year. This volume growth, coupled with the strong unit economics we're currently demonstrating, should drive improved financial performance in the Marketplace segment. In the Finance segment, we expect continued strong volumes and revenue. Our Q3 loan loss ratio at AFC was at the higher end of what we believe to be the normal range, and generally aligned with the range experienced before the pandemic. We continue to manage this risk very closely across the portfolio, and we have been deliberate about growing responsibly to ensure that new business we take on at AFC is stable. Overall, we expect continued solid performance from AFC, even though AFC's full-year results will be below last year's record levels. Brad will provide a more detailed update on how those factors impact various aspects of our guidance for the remainder of 2023. As we look beyond this year, we will continue to execute a focused strategy and take actions to control the things we can control. We expect to build on our 2023 performance in 2024 and beyond. We believe the majority of our growth will be driven by our Marketplace segment, but our Finance segment will also grow over 2023 levels and remain a strong contributor to our overall results. To conclude, I want to reiterate that I believe OPENLANE has a unique and differentiated offering to the market, a compelling business model and a sound strategy for growth. We are a pure-play digital marketplace leader with deep strength with commercial sellers and in the dealer-to-dealer business. We have access to a large addressable market in North America and in Europe and intend to grow our share in these markets. I believe macro factors point to an improving outlook for commercial off-lease volumes. I expect the recovery will take time, but it will come, and this recovery plus the continuing secular shift towards digital all point to an exciting future for OPENLANE. We have a robust pipeline of innovation that supports our growth strategy. By consolidating our platforms, we will get greater leverage from our technology and product investments and will focus our energy, resources and investments on building the best digital marketplace for our customers. We are profitable and deliver strong positive cash flows. Our third quarter and year-to-date results demonstrate that our profitability and cash flow characteristics have improved despite the lower than normal volume environment, and I'm confident they will improve further as we grow our volumes. Our strong cash flows allow us to invest in our business while generating additional capital that can be used to pay down debt, return capital to shareholders and make strategic investments. With that, I will now turn the call over to Brad Lakhia, who will provide additional detail on our third quarter financial performance. Brad?

Thank you, Peter, and good afternoon, everyone. I'll start with our Marketplace segment. As Peter mentioned, we had strong unit volume growth, which drove a 3% increase in marketplace revenues, excluding purchased vehicle sales. We've delivered volume increases in both our commercial and dealer channels. Auction fees per unit increased 6% driven by select fee increases and the introduction of new auction-related services. Marketplace service revenues declined 3%, largely due to lower transportation services and the receipt of a royalty payment in the third quarter of last year. The overall improvement in Marketplace revenue resulted in a 17% increase in gross profit. This represents a 530 basis point improvement versus the third quarter of last year, again excluding purchased vehicle revenues. It also represents a 200 basis point improvement sequentially compared to the second quarter of this year. In addition, gross profit benefited from improved mix in our service-related businesses and cost-saving initiatives. As Peter highlighted earlier, our Marketplace adjusted EBITDA for the quarter was $27 million, $9 million higher than the third quarter of last year. This was driven by improvements in volume, price, mix and cost savings initiatives, including lower year-over-year and sequential SG&A. Looking at year-to-date, our Marketplace adjusted EBITDA was $85 million, a $63 million improvement compared to last year. For added context, our dealer-to-dealer business is profitable and meaningfully contributed to this year-to-date improvement. This improvement supports the $100 million adjusted EBITDA run rate we highlighted in the second quarter call and Peter mentioned earlier. It reflects our pricing and cost management actions materializing and provides a window into the volume scalability of the segment. Turning to our Finance segment. Revenues in the quarter were $100 million, a 1% increase over the prior year. This was driven by a 2% increase in loan transactions, improved fee income per unit and interest rate yields. Finance segment adjusted EBITDA in the quarter was $41 million compared to $52 million last year. This decrease is explained by a $10 million increase in credit losses, which equates to a 2% loss rate for the quarter. As discussed in prior calls, this represents a more normalized rate compared to very favorable fundamentals that enabled a much lower loss rate over the last two years. Regarding credit loss management, I'd like to highlight a couple of things we've noted in prior calls and disclosures. First, our Finance business has a strong service offering that leverages the combination of a high-touch customer relationship model and a data-driven risk management process that we believe is industry leading. This combination allows the business to deliver growth while prudently managing risk. Second, as we move through the remainder of this year and into next year, we'll be faced with changing used car fundamentals, and therefore we will continue to manage a conservative portfolio. Over time, we continue to expect the loss rate to be 2% or lower annually. However, actual losses in any period could deviate from this range. Turning to SG&A. Consolidated SG&A declined 2% or $25 million compared to the third quarter of 2022, reflecting the execution of our ongoing cost savings initiatives. The implementation of some of these initiatives include duplicative costs that will roll off throughout 2024 and will help offset ongoing inflationary pressures. I would also like to highlight that we expect fourth quarter SG&A to be higher than the fourth quarter of 2022 due to a $9 million reduction in non-cash compensation expense that occurred last year. Turning to the balance sheet and capital allocation. Consistent with the first half of the year, we continue to generate strong cash flow. Cash flows from operating activities now stand at $216 million year-to-date. This level of cash generation demonstrates the value-creating potential of our asset-light, digitally-focused strategy and business model. Our cash generation has improved our liquidity position and further strengthened our balance sheet. This is evidenced by a $131 million reduction in net debt since the end of 2022 and a meaningful improvement in our consolidated net leverage ratio, which now stands at approximately one turn of adjusted EBITDA. Given the current macro and industry environment, we will continue to focus on managing a prudent balance sheet while maintaining and improving our liquidity position. We will prioritize capital to fund organic investments in our core digitally-focused business while ensuring flexibility for high-return, complementary strategic investments and shareholder returns. During the quarter, we completed $22 million in share repurchases and we increased and extended our share repurchase program authorization to $125 million through the end of 2024. I'll wrap up my comments by addressing a few annual guidance items. We're confirming our prior adjusted EBITDA guidance of $250 million to $270 million, and as we said last quarter, we continue to believe we are trending to the higher end of this range. We're also confirming our expected operating adjusted net income per share of between $0.60 and $0.70. Finally, capital expenditures are now expected to be $55 million compared to our previous expectation of $60 million. With that, I'll turn the call back over to Rocco for questions.

Today's first question comes from Craig Kennison with Baird. Please go ahead.

Hey, thanks for taking my questions. The first one is on the repo market. Just wondering if you could comment on the impact on your commercial business?

Craig, thank you for that question. We've seen an increase in repo volume in the industry. Repo as a segment is back to very close to pre-pandemic levels. While we have some exposure to repos in our services businesses and in Canada, our repo volumes in Canada are relatively lower. We do not sell many repossessed vehicles in our digital marketplaces in the U.S., so we don't benefit in terms of numbers of vehicles sold in our U.S. digital marketplace to any significant extent today. Repo volumes have increased materially since 2021, which benefits our services businesses, but not materially our U.S. digital marketplace. And with respect to your off-lease business question, I take your point about the positive equity that exists today. When that market comes back, are you confident you will capture the same very high percentage of that market through your platform? In short, yes. Our seller relationships are intact and we're servicing those customers. If anything, the percentage of those vehicles that are selling digitally today is higher than pre-pandemic. So the top of the funnel is lower, but the conversion rate is higher. Based on discussions with those sellers, they're very focused on trying to maximize the online selling percentage for those off-lease vehicles. Obviously, it remains to be seen, but there is an argument we could capture an even increased share versus pre-pandemic.

Thank you. Our next question comes from Gary Prestopino with Barrington Research. Please go ahead.

Hey, good afternoon all. A couple of questions, Peter. Were conversion rates somewhat abnormally higher because of the impact of the UAW strike in the quarter? Or did that not come into play?

It didn't really come into play. The labor action didn't really start until late in the quarter, so it didn't impact July or August. Regarding pricing and conversion rates, pricing declined at a fairly fast clip as the quarter started, and by the end of the quarter the rate of decline had slowed. I attribute that in part to the UAW action, less supply, and similar factors. We also saw a little bump in conversion late in the quarter, likely for the same reason, but it wasn't material. Conversion rates in the third quarter were generally in line with what we saw in the first half of the year.

Okay. That's good. In terms of commercial vehicles, could you highlight what segments of the commercial vehicle market were really strong? And where is lease penetration now?

On commercial vehicles, we saw growth in all of the markets we operate in: Canada, the U.S. and Europe. The OEMs are providing more inventory to commercial accounts, such as rental car companies and fleet operators, which has accelerated defleeting out of commercial business. That increased supply has been needed because those customers lacked supply over the last couple of years. We also continue to see repossession volume contribute to the commercial business. In the off-lease space, the equity gap narrowed a bit and while the majority of cars are being bought out before they enter the marketing process, we did see that percentage decline somewhat and more vehicles flow into our U.S. off-lease business. Regarding lease penetration, the data we reviewed suggests the volume of leases written in the third quarter is likely up about 30% compared to the third quarter last year. Translating that into lease penetration, I believe it's in the low 20% range. From customer conversations, some commercial accounts are clearly leasing significantly more vehicles than a year ago, though it's not uniform across all accounts. It depends on how much each brand is incentivizing vehicle sales, which tends to drive leasing.

Okay. And then lastly, you cited the introduction of some new auction-related services that helped drive the increase in auction fees per vehicle. Could you briefly discuss what some of these new services are?

Thanks, Gary. These offerings were introduced largely in our U.S. dealer channel. They provide customers additional options for how they want to pay and have helped drive improvements in working capital. It's a two-pronged benefit: buyers have more flexible payment options and we've been able to drive more efficiency in our capital structure.

Our next question today comes from Bob Labick with CJS Securities.

It's actually Lee Jagoda for Bob. I think you already commented a bit on lease volumes and where they're going. Can you break it down more in terms of just lease volumes in general and what part of the funnel the off-lease cars are going to today? Please break that down between the lessee, the grounding dealer, closed auctions, open or physical.

In a typical lease environment, pre-pandemic, consumers would buy out perhaps 20% to 30% of maturing volume, with 70% to 80% entering remarketing. Some portion would sell to the grounding dealer, some to the franchise dealer network, some on open sale and the rest to physical auction. Over the last two years, used vehicle values rose so much that consumers have been buying out vehicles at considerably higher rates, often 60% to 70% or more. If consumers don't buy out the car, many OEMs and captives give the grounding dealer the same buyout option, and because cars were in equity, grounding dealers often exercised that. That has meant the amount of vehicles flowing deeper into the channel has been down versus normal. To address this, the equity gap has to decline. We see the beginnings of that happening now. The leases in question were written against much higher new vehicle transaction prices, so residual values were higher in contracts. On the other side, actual used vehicle values are seeing downward pressure. I expect these two lines to converge back to a more normal environment but it's hard to predict the exact timing. Increased new lease originations, OEM production returning and some increases in incentives have driven more leasing and point to strong off-lease volume going forward.

Great. The consensus is there is a secular shift to online dealer-to-dealer from physical. That transition may be lumpy. Can you estimate physical versus digital volumes in the market and their growth year-to-date? How should we think about this going into 2024?

Based on the data we track, in the U.S. roughly 30% of volume has transitioned to a fully digital off-site model and about 70% is transacting in a physical or hybrid model today. There are also informal dealer-to-dealer transactions outside those channels. Digital share has been fairly steady around 30% the last year or two, partly because there was a rebound in physical activity as the pandemic eased. Over a longer period, the secular shift to digital remains intact. Our dealer surveys support this, especially among franchise dealers who generally prefer to purchase vehicles online and do not prioritize attending physical auctions in person. Independent dealers are not as far along the curve but there's clear digital preference and adoption continues to grow.

Our next question comes from Bret Jordan with Jefferies.

In AFC, as we think about loss rates and the environment today with margin pressure for independent used car dealers and higher floor plan expenses, is there a risk loss rates could go above that 2% rate in the short term? Or because the loans are short term, can you pull credit back and reduce exposure to dealer pressures?

Thanks. The portfolio tenor is short—about 60 days on average—so we have levers to pull back exposure quickly. Over the last year, we've been more risk off with higher-risk independent dealers and our credit monitoring and risk management processes are tuned to that segment. There is a chance we could periodically move above the 2% range, but in the near term we feel comfortable with our position.

Okay. You mentioned the potential to gain share in off-lease, but you no longer have a physical option. What proposition do you have to drive share gain? Is it economic—do you do it cheaper—or what does the off-lease seller get when they're not using the physical alternative?

The digital model offers speed, efficiency and market efficiency, as well as network effects. Before the pandemic, conversion rates of off-lease vehicles in our upstream channel were already strong—around 55% among our U.S. customers—and had been trending up over many years. With our digital marketplace you get accurate inspections, broad buyer access, true price discovery, and quick transaction and delivery—often within a few days. This delivers efficiency and low cost. We now have far more buyers online than in prior years, which makes our marketplace more liquid. Sellers have become accustomed to not sending many cars to physical auctions over the last three years, so many prefer to maintain strong upstream online conversion rates. The digital channel has unique advantages that should be evident as volumes recover.

Our next question comes from Rajat Gupta with JPMorgan. Please go ahead.

Thanks for taking the question. Dealer consignment volumes were up 3% year-over-year and you mentioned Canada outperformed. Could you give color on what the U.S. did on the dealer-to-dealer side? Any way to characterize your market share growth in D2D in the U.S. in the third quarter?

When I referenced Canada, I spoke about aggregate performance across commercial and dealer. Our U.S. dealer-to-dealer year-on-year growth rate was very similar and may have been slightly higher than Canada. We don't break out specific growth numbers by geography publicly, but the U.S. is the majority of our dealer-to-dealer volume. We track market share in many ways and our share has been fairly stable. We believe as the digital D2D segment grows, we are well positioned to gain share.

Got it. On fourth quarter implied guidance, it implies over $50 million in EBITDA. Is that just seasonal and how much of that comes from Marketplace versus AFC sequentially?

Yes, Rajat. The implied Q4 amount around $50 million on the low side—call it $50 million to $60 million—does reflect seasonality. We continue to feel we're trending toward the higher end of our annual guidance range. In Q3, the Marketplace represented about 40% of total adjusted EBITDA, and you could assume something similar for Q4.

Our next question comes from Daniel Imbro with Stephens. Please go ahead.

Good evening, everybody. Peter, you mentioned benefits of consolidation in Canada and examples of tools you introduced. Are those tools transferable to the U.S. once consolidation is complete? And can you give other examples of opportunities to innovate in the U.S. you couldn't do before integration to OPENLANE?

Yes, to an extent. In Canada we migrated TradeRev and ADESA to one consolidated platform. We're doing similar consolidation in the U.S., but additional back-end consolidation remains to get to a fully unified platform; that requires significant technology work. Some features are easy to transfer today and others will take more work, but over time they will become transferable. Our dealer survey work shows dealers view our systems as easy to use, which is encouraging because we aim to keep complexity behind the scenes. I'm excited about putting off-lease cars into a much more liquid marketplace that has more buyers and established auction-type sales formats. Historically, private label and upstream business often operated more like click-and-buy with fixed prices; the new platform supports true auction-type price discovery. Some commercial customers are excited to experiment with auction formats to drive higher conversion. There are numerous other opportunities, but that auction-style price discovery capability is one impactful example.

Thanks. Longer-term, historically off-lease was ARPU accretive—perhaps $1,000 including recon vs. $200 in open online auctions. Without recon on the back end, should we expect less ARPU accretion? Can you frame unit economics between off-lease and dealer-to-dealer as more volume shifts to commercial in the coming years?

Hard to go into deep detail on this call, but in general terms commercial off-lease vehicles tend to be lower ARPU but higher gross profit percentage. Revenue per car is often lower, but we have fewer direct costs against those vehicles. Historically that business was very profitable, well beyond its current level, so I'm confident as volumes return it will be beneficial. Yes, ARPU metrics may change, but gross profit margin in percentage terms should improve and overall company profitability will improve as those volumes return.

Yes, sir, that's correct. Please proceed.

Okay. Great. Thank you. I appreciate everybody's time today and the good questions. As I said at the outset of this call, I'm pleased with the third quarter performance, and I believe the results speak for themselves. We're focused on closing out this year strong, executing our strategy as described on this call and others, and growing the business in 2024 and beyond. I appreciate you all joining today's call and I look forward to updating you on our continued progress in our next call early in the new year. Thank you all very much.

Thank you. This concludes today's call. You may now disconnect your lines and have a wonderful day.