Good day and welcome to the OPENLANE Third Quarter 2024 Earnings Call. All participants will be in a listen-only mode. Operator instructions will be provided as needed. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ms. Itunu Orelaru. Please go ahead, ma'am.

Thanks, Chuck. Good afternoon, everyone. Welcome to OPENLANE's third quarter 2024 earnings call. With me today are Peter Kelly, CEO of OPENLANE, and Brad Lakhia, CFO of OPENLANE. Our remarks today include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve risks and uncertainties that may cause our actual results or performance to differ materially from such statements. Factors that could cause such differences include those discussed in our press release issued today and in our SEC filings. Certain non-GAAP financial measures as defined under the SEC rules will be discussed on our call. Reconciliations of GAAP to non-GAAP measures are provided in our earnings materials and available in the Investor Relations section of our website. With that, I'll turn the call over to Peter. Peter?

Thank you, Itunu, and good afternoon, everybody. I'm pleased to be here today to share OPENLANE's strong third quarter results. I will start with some high-level details around our performance, our strategy and our outlook for the future and then I'll turn the call over to Brad Lakhia to provide additional detail on our financial and operating metrics. OPENLANE had a very positive third quarter. On a consolidated basis we increased revenue and delivered $75 million in adjusted EBITDA representing a 10% increase over the prior year and year-to-date we've generated $260 million in cash from operations similar to Q1 and Q2. I'm very pleased that these Q3 results reflect a significantly improved performance in the OPENLANE Marketplace segment on 6% volume growth. The marketplace grew revenue and gross profit while delivering $36 million in adjusted EBITDA. That was a 34% increase over the third quarter of last year and this is now the third straight quarter where our marketplace segment has contributed nearly 50% of our consolidated adjusted EBITDA and that's up from an average of around 39% for the same three quarters last year. AFC was again a strong contributor in the third quarter generating approximately $39 million of adjusted EBITDA while reducing SG&A costs and effectively managing risk across that portfolio. These third quarter results clearly demonstrate our ability to generate profitable growth and the strong scalability characteristics of our asset-light digital model. I also believe our results reflect how customers increasingly view and value our differentiated offerings. OPENLANE is a true market leader in technology and we're seeing the positive results of the strategic investments we're making in innovation, in people and in the customer experience. All of this fuels my optimism for our long-term growth in volume, market share and profitability. Let me turn to our strategy and how we plan to build on this positive momentum. Our strategy for growth is anchored in our purpose, which is to make wholesale easy so our customers can be more successful. We're making wholesale easy by focusing on three enabling priorities. First, by delivering the best marketplace, expanding to more buyers and more sellers, and offering the most diverse inventory available. Second, by delivering the best technologies, innovative products and services that help our customers make informed decisions and achieve better outcomes. Third, by delivering the best customer experience, keeping our marketplace fast, fair and transparent, making it easy for customers to transact, and making OPENLANE the most preferred and most utilized marketplace. Let me detail how we're advancing each of these and how they're positioning us for the future, beginning with creating the best marketplace. OPENLANE's third quarter marks the sixth consecutive quarter of year-on-year growth in our marketplace segment with positive contributions from our U.S., Canadian and European marketplaces. During the quarter we increased the number of vehicles offered and sold, delivering growth with both commercial and dealer-owned vehicles. Our marketplace facilitated a gross merchandise value of nearly $7 billion, which was a 12% increase over the same quarter last year. We also increased our marketplace participation, delivering one of our strongest new dealer recruitment quarters since 2021 as well as a double-digit increase in unique buyers transacting on our platform. All of these point to the strength of our offering, the vibrancy of the OPENLANE marketplace and the value that OPENLANE delivers in terms of speed of sale, high conversion rates, low selling costs and excellent financial outcomes for our customers. Focusing on dealer volumes, we are clearly seeing the power of OPENLANE's network effect and my optimism remains as strong as ever around our longer-term growth opportunity in the dealer space. During the quarter we grew our dealer volumes by 3% representing a significant improvement versus the first half of this year. Momentum also increased over the course of the quarter and that gives me increased optimism for a trajectory in the fourth quarter and into next year. We attribute much of this to the scaling of our marketplace, our accelerated brand and digital marketing efforts, and our go-to-market investments which are generating increased participation from franchise and independent dealers both as sellers and as buyers in our marketplace. We're also seeing customers continue to gravitate towards digital. When comparing the most recent four quarters to the preceding four quarters, we believe our dealer volume growth is outpacing and taking market share from physical auctions, and there is still a very large addressable market for us to capture. In terms of commercial off-lease volumes, OPENLANE remains a clear market leader and I was pleased to see our commercial volumes growing in the third quarter. We have discussed on prior calls that the low level of leases written in late 2021 and 2022 are a headwind to off-lease volumes in the second half of this year and in 2025, and that off-lease volumes will not materially grow until 2026 and beyond. Given that background, I'm pleased with how our off-lease volumes held up in Q3. I was also pleased to see industry new vehicle sales increase and lease originations increase for the sixth straight quarter, which will be a positive for OPENLANE when those leases mature. OPENLANE remains well positioned with commercial sellers delivering faster speed of sale, higher conversion, lower costs and better financial outcomes. In fact, one of our commercial sellers is now converting nearly 95% of their inventory in OPENLANE, and many customers have commented to me that OPENLANE is bringing them a substantial premium compared to vehicles they're selling at physical auction. In summary, OPENLANE is focused on leveraging the combined power of our growing dealer base with our strong relationships and market position with commercial customers. Both customer sets will benefit from greater exposure, integration and interaction through the OPENLANE marketplace. The second way we're making wholesale easy is by leveraging our asset-light digital model to deliver what we believe is the best, most innovative technology available in the United States. We've spoken on previous calls about our investments in condition reports through industry-first offerings like Visual Boost AI and CodeBoost IQ. We are committed to providing comprehensive condition data on every vehicle offered for sale. We're also seeing momentum build around our absolute sale feature. About half of the dealer transactions in our U.S. marketplace are now sold through an absolute sale, and on average, sellers who launch a vehicle into an absolute sale receive almost $700 in incremental bids after they activate this feature. That's a powerful figure that continues to increase in Canada. We're enriching the data we provide to buyers and sellers, deploying AI-powered vehicle recommendations and expanding our self-service offerings to enhance the overall buying and selling experience in Europe. We recently received the Fleet Europe Remarketing Innovation award for our OPENLANE Sell offering which gives sellers more control and the ability to customize their selling experience in real time. For our commercial customers, we are deepening the integrations between our private-label programs and their back-end financial and operational systems. Already this year we have deployed 65 major enhancements and over 2,700 other improvements to help commercial customers prepare for a more digital future and create an even closer connection with their franchise dealer networks. Finally, on how we're making wholesale easy by providing an exceptional customer experience: During the quarter I had the opportunity to spend significant time with many OPENLANE customers. I came away with the strong conviction that our customers are increasingly looking to a digital future in terms of how they sell and source their inventory and how they connect with their retail customers. It's also clear to me that OPENLANE's customers value relationships and that OPENLANE is a valued business partner. We're investing in those relationships and focusing on delivering real value through technologies that are highly sophisticated but also very easy to use. We are integrating AI into our operational processes and service workflows to help reduce administrative tasks and to resolve customer issues more quickly and consistently. Also during the third quarter we launched a standardized Transactional Net Promoter Score, or NPS, system across our U.S., Canadian and European marketplaces. The early results and feedback we're getting from dealers range from good to great to excellent depending on the platform. Some of the consistent positives cited by our customers include ease of use, appreciation of the new features and functionality as well as our highly responsive customer support teams. We are committed to delivering a positive, data-driven and high-touch customer experience and I believe this will be a competitive differentiator for OPENLANE and a core driver of our future growth. I'd like to spend a few moments on AFC while Brad will provide additional detail in a few moments. We will be hosting an investor update on November 19 to provide additional disclosures and metrics that finance-related businesses typically share with their investors. AFC is a strong, high-performing business with a leading market position and it is a valuable asset to OPENLANE. It helps attract, enroll and engage dealers on the OPENLANE marketplace and it generates strong adjusted EBITDA and cash that can be reinvested in the business. We believe that the enhanced information will improve investors' understanding of this business, will better highlight AFC's leading financial performance metrics and ultimately allow investors to more accurately value AFC. The performance metrics we will highlight will include AFC's leading return on equity, return on assets, and the strength of AFC's high mix of fee income and strong net interest margins. These leading performance indicators are driven by AFC's strong market share, its exceptional customer service, and its competitively differentiated underwriting and risk management processes. We look forward to sharing all of that information with you later this month. To close out my comments on the quarter, I want to reinforce that OPENLANE is very well positioned in the market and that our differentiated offerings are gaining momentum and customer loyalty. The third quarter represented another positive step on what I believe is a much more consistent track record of performance, and our results reinforce our key value proposition for investors that OPENLANE is an asset-light digital marketplace leader for wholesale used vehicles, that there is a large addressable market in North America and in Europe and we're well positioned to capture the opportunities to grow both dealer and commercial volumes. It's clear that our brand and platform consolidation efforts over the past 24 months are now enabling us to accelerate innovation and product development. Our focus on operational efficiency has also given us the financial headroom to invest in that innovation while also improving our financial results. We are cash flow positive with a strong balance sheet and we believe that our business has the capability to deliver meaningful earnings growth over the next several years. That concludes my remarks regarding the third quarter. Before I turn the call over to Brad Lakhia, I have one other announcement: Brad will be leaving OPENLANE to pursue another opportunity. Brad will remain at the company through the end of February to assist in finalizing our 2024 fourth quarter and year-end results and to help ensure a smooth transition. We have already initiated a national search for a new CFO. We have strong bench strength and institutional knowledge across our finance teams, and we also have a solid foundation of cost management, capital allocation and investing in innovation. These are areas that Brad helped enhance during his time here at OPENLANE. Brad, please provide any additional context you'd like to offer before you cover financial results.

Thank you, Peter. Before I get into my remarks regarding the quarter, I want to be clear that the decision I made to leave OPENLANE was a difficult, personal one. Since I started with OPENLANE I've been commuting most weeks between Ohio and Indiana, and this change will allow me to spend more time with my family and be closer to home. OPENLANE is on a very positive trajectory as evidenced by the strong third quarter results we are communicating today. The investments the company is making in innovation, technology and people have positioned the company to capture the opportunities ahead, and I'm grateful for the opportunity to work with Peter and the incredibly talented management team here at OPENLANE. As Peter mentioned, I will remain at OPENLANE through the end of February and will continue to be available to investors and analysts during that time. Now let me turn to the third quarter. We delivered another strong quarter driven primarily by the strength of our marketplace segment as well as our ongoing focus on operational efficiency. As usual, certain comments I make related to Consolidated OPENLANE and the marketplace segment are on a net revenue basis which excludes the impact of purchased vehicle sales. In addition, my comments will be on a third quarter year-over-year basis unless I state otherwise. Our consolidated revenue was $448 million, up 8%, mainly driven by the 6% unit volume growth in our marketplace segment. In our results you'll see our net revenue was flat as we continue to realize the impact from the transportation accounting change we made in the fourth quarter of 2023. This change impacted net revenue by $13 million in the third quarter and since we made this change during the fourth quarter of last year, our comparisons as we move into 2025 will be clean of this change. Total cost of services was $252 million, up 17%. Gross profit was $196 million, down 2%. Higher auction fee revenue was offset by the impact of a higher mix of commercial volumes and a decline in finance segment revenue. Adjusted EBITDA was $75 million, up 10%, primarily driven by the increased marketplace volume and lower SG&A. Consolidated SG&A for the quarter was $99 million, down 7%, reflecting the successful execution of our cost savings initiatives. The SG&A decline was primarily due to lower professional fees and compensation-related expenses. In addition, our technology platform consolidation initiative led to a reduction in our technology costs during the quarter. As a company, we remain very focused on our cost culture. This culture drives productivity that enables investment in growth and innovation and we've established internal programs to drive this consistently throughout OPENLANE for the balance of 2024. We expect our SG&A spend to remain at similar levels to recent quarters and we remain committed to funding core go-to-market, customer-facing investments. Turning to the marketplace segment, revenue increased 12% to $354 million. Our total volumes were up 6% with commercial and dealer volumes increasing by 8% and 3%, respectively. Auction fee revenue increased by 11%, primarily driven by the volume growth as reported. Services revenue was down 4% once again primarily due to the transportation accounting change mentioned earlier. Excluding this change, services revenue was up 5%, primarily driven by transportation-related services and volume increases. The volume increases reflect our ongoing focus to drive greater attachment of our services to our core marketplace offerings. Marketplace adjusted EBITDA was $36 million, up 34%. This improvement was driven primarily by higher auction and service-related volume and lower cost. Marketplace SG&A was down 7% driven by the factors discussed earlier. As Peter stated, we are very pleased with the overall performance of our marketplace business. Our commitment to making wholesale easy is enabled by delivering the best marketplace, the best technology and the best customer experience. We believe our ongoing and focused investments in these priorities will enable us to deliver scalable, profitable top-line growth and capture margin improvements over time. Turning to our finance segment, revenues for the quarter were down 6%, primarily driven by flat volumes and lower interest income resulting from lower vehicle values within the portfolio. To provide some market insight over the past couple of quarters, we are seeing independent dealers notably more disciplined with the amount of vehicles they are carrying on their lots. While this disciplined approach supports an improved credit risk profile, it challenges AFC's ability to deliver revenue growth, particularly when coupled with the impact of lower vehicle values, and we expect this volume challenge to persist at least through the early part of 2025. That said, despite flat loan transaction units in the quarter, we believe this is a broader market trend and not impacting our market share and therefore we're very pleased with our relative competitive performance. Finance segment adjusted EBITDA was $39 million, down 5% reflecting the impact of the factors I just discussed. Finance SG&A was also down 7% driven by the same factors I mentioned earlier. From a risk management perspective, we are pleased with the third quarter provision for credit losses of 2.1%. This reflects continued improvement in risk fundamentals but also the advantages of our leading risk management processes, analytics and close-to-the-customer model. While we are only halfway through the fourth quarter, we are thus far seeing consistent improvements in both frequency and severity of losses. Therefore, at this time we expect the loan loss rate for the fourth quarter to be generally consistent with the third quarter. To reiterate, we continue to target a long-term loss rate of 1.5% to 2%. Overall, AFC remains a strong, high-performing business and a strategic asset that drives stickiness and critical services to OPENLANE's customers. AFC's strong cash flow characteristics also support OPENLANE's overall capital allocation, including the funding of our strong pipeline of organic initiatives. Moving to the balance sheet and capital allocation: consistent with prior quarters, we continue to generate strong cash flow. Year to date, we have generated $260 million of cash flow from operations and our consolidated net leverage stands at less than one times adjusted EBITDA over the past seven quarters and when excluding changes in operating assets and liabilities, we've generated between $50 million to $70 million quarterly in cash flow from operations. This level of cash generation demonstrates the value of our asset-light digitally focused marketplace business working in combination with our leading floor plan finance business. Overall, the core of our capital allocation framework remains the same. We continue to prioritize the funding of organic investments while ensuring flexibility for high-return, complementary strategic opportunities and shareholder returns. In Q3, we bought back approximately 1.8 million shares as part of our share repurchase program. We have also increased and extended our share repurchase program to $100 million through the end of 2025. Our philosophy on share repurchases has not changed. We will remain principled and opportunistic with this program. Wrapping up on 2024 annual guidance, we have updated our adjusted EBITDA guidance to $285 million to $295 million. Other updated guidance metrics are reflected in our earnings release issued earlier today. To summarize our third quarter performance: consolidated adjusted EBITDA grew 10%, our marketplace adjusted EBITDA grew 34% and our marketplace volumes grew 6%. Our finance credit loss rate continues to improve and AFC continues to be a major contributor to our overall financial performance. We generated $260 million of cash flow from operations through nine months. Finally, we believe our strong performance reinforces the strength of our strategy, our compelling value proposition for our customers and the benefits of our asset-light digital model. Before I turn the call to the operator for questions, as Peter mentioned, we'll be hosting a virtual investor update on Tuesday, November 19 from 10:00 a.m. to 10:45 a.m. Eastern Time. Members of our senior executive management team will discuss OPENLANE strategy and our enhanced AFC disclosures and performance metrics. We'll also allocate time at the end for Q&A. Please ensure you join the live webcast. Information to join will be posted on our website. With that, I'll turn the call over to the operator for questions.

We will now begin the question-and-answer session. The first question will come from Rajat Gupta with JP Morgan. Please go ahead.

Great. Thanks for taking the questions. Brad, just want to wish you all the best and look forward to speaking with you over the next few months. I have a couple questions. Maybe on the D2D volumes in the U.S. specifically: you mentioned that you continue to gain share versus physical auctions. Are you able to quantify that a little more in terms of how much that delta is, maybe how much was U.S. overall versus Canada? Any more color there? Or to ask it another way, are you able to give us a sense of how your open marketplace did in the U.S. versus the industry in any way you could characterize those share gains in more granular fashion? I have a follow-up. Thanks.

Thanks, Rajat. I appreciate that. As I mentioned in my remarks, I was pleased to see dealer volumes improve, particularly versus the first half of the year. We saw a substantial positive swing versus the year-on-year trajectory, and that was the case in the U.S. as well as in other markets we operate in. We believe we're gaining share in the marketplace. If we look at our total open sale transactions versus dealer transactions in AuctionNet, we believe we're growing relative to that benchmark. We also saw improving momentum over the course of the quarter, finishing the quarter stronger than we started. Some of that is attributable to putting more go-to-market resources in the field at the start of the quarter, which takes time to have an impact. We're seeing increased marketplace participation; we track number of sellers and buyers and we're seeing growth in total marketplace participation, growth in both sellers and buyers, probably more growth on the buy side than the sell side. We don't provide the split between U.S. and Canada by specific numbers, but we're pleased with the traction in both markets.

Got it. That's helpful color. Maybe just on pricing strategy: some of your peers, especially on the digital side, have moved price increases earlier in the year. Have you followed those price increases? How would you rate your prices versus them? Or could you give a sense of the difference between yours and the physical auction providers today and how much more pricing power there is in the business?

When I think about pricing and the value proposition to our customers, I go back to our purpose statement: making wholesale easy so our customers can be more successful. The attributes that differentiate us include speed to sale — we can sell cars quickly — lower cost of sale compared to alternative remarketing channels, and excellent customer service and pricing outcomes. Those structural advantages resonate with our customers and support growth. We are focused on ensuring we get appropriate reward for the value we provide. I believe we're well positioned versus competition; our prices are at or below what a customer would tend to pay in alternative channels, so there is some headroom. Specifically, late in the third quarter, in September, we implemented a price increase in Canada to reflect the impact of a digital services tax we discussed on the last earnings call. That is now in place and will be fully reflected in Q4 and through 2025. More recently in the fourth quarter we implemented a modest price increase in our U.S. open marketplace, reflecting that we have room to increase pricing. Even with this change, we believe we're attractively priced relative to alternatives. These changes were not reflected in Q3 results; they will be partially reflected in Q4 and fully reflected in 2025. We remain focused on creating customer value and getting an appropriate reward for doing so. Notably, marketplace EBITDA grew 34% year over year without being very aggressive on pricing, which reinforces our confidence in the positioning of the business.

The next question will come from John Murphy with Bank of America. Please go ahead.

Good afternoon. On the volume ramp, it seems like it's been improving in the past couple of quarters, but dealers often mention difficulty finding vehicles. As you think about when an industry-wide inflection in volume might occur and how the leverage you're seeing could really inflect and take off, what are your thoughts?

Thanks, John. I'm pleased we're continuing to deliver volume growth; Q3 marked six consecutive quarters of volume growth. We grew volumes in both commercial and dealer channels. Commercial volumes improved despite the off-lease headwinds. On the dealer side, we saw significant improvement versus the first half of the year and momentum improved over the quarter. Regarding macro factors, inventory on dealer lots has increased on the new car side and that can make dealers more willing to trade marginal units which can positively impact dealer consignment. I think this trend could be longer-term rather than transitory. Many analysts expect inventory levels to normalize. We do expect commercial volume headwinds to persist through parts of 2025. The real acceleration, in our view, is likely in 2026 when leases written in 2023 roll off, which will increase maturity volumes. Some of those returned vehicles will have higher percentages of EVs and more of them may be returned rather than paid off, which will influence returns. Overall, dealers we spoke with see used-car inventory as tighter than they'd like and expect changes in late 2025 into 2026.

Second question on the financing side: with consumer delinquencies and subprime pressures, is there any contagion affecting your dealer base on the AFC side — any incremental signs of trouble or need for higher provisioning?

John, we're not seeing contagion. We're seeing the opposite: risk metrics at AFC are improving. AFC continues to perform well and remains a strong contributor to our consolidated results. It generated $39 million of adjusted EBITDA in the quarter. Used-vehicle values have stabilized compared to the significant declines seen previously, which helps improve the risk profile. We look forward to discussing AFC in more detail on the November 19 investor update.

John, to add to Peter's comments: independent dealers are being more disciplined about the number of vehicles they carry, which supports an improved risk profile. We saw heightened risk when vehicle values declined in 2023, so this dealer discipline is positive. Recent reductions in interest rates have been helpful for independent dealers, and potential further cuts would make floor plans more affordable. In terms of contagion from subprime retail dynamics, we are not seeing that. We maintain disciplined underwriting, strong risk management, and a close-to-the-customer branch model, which helps us stay on top of account risk profiles. We feel very good about where the business is at.

The next question will come from William Joseph with CJS Securities on for Bob Letick. Please go ahead.

Hi, this is Will on for Bob. One question: how is the mix of off-lease auctions changing, if at all, with lower off-lease volumes?

Will, it hasn't changed dramatically, but we've noticed more participation by franchise dealers as buyers in our open marketplace as we ramp up go-to-market efforts. Franchise dealers are learning that OPENLANE offers differentiated off-lease inventory. We're seeing absolute improvements in the number of off-lease vehicles selling in the open channel year over year in both absolute numbers and percentage terms. That's positive because the open channel is our highest ARPU, revenue-per-unit channel within the off-lease waterfall. We're seeing a small uptick in blended ARPU across the off-lease category, reflecting a modest shift of vehicles into higher-revenue channels. How this plays out over the next year depends on many factors, but the current trajectory is encouraging.

The next question will come from Gary Prestopino with Barrington Research. Please go ahead.

Hi, good afternoon. Peter, you mentioned increased dealer participation and dealer consignment vehicles sold were up for the first time this year in any quarter. Can you provide some metrics around dealer participation and dealer recruitment?

Gary, we don't disclose exact recruitment numbers each quarter, but we do track active buyers and sellers, both by login activity and transaction activity, and total participants. We saw good growth over the course of the quarter, particularly on the buyer side. In any given quarter we have tens of thousands of active dealers in North America, roughly a third on the sell side and two-thirds on the buy side, with many dealers both buying and selling. The carwave migration earlier posed some headwinds, but since rebranding to OPENLANE we've seen robust improvement, including strong performance in the California market and positive growth in commercial inventory there.

Are you being more proactive with dealer recruitment, or is word getting out about the platform ease of use and outcomes?

It's both. We are absolutely being more proactive with go-to-market investments to communicate the value our platform creates. At the same time, word of mouth is spreading. We completed the OPENLANE brand transition late last year and that helped create clarity. Dealers are increasingly hearing positive, unsolicited feedback from peers about the outcomes we're delivering. For example, a sizable dealer group recently shared appreciation publicly for OPENLANE delivering prices and a uniform sales process that benefit their business. That kind of feedback is helpful and indicates momentum in the dealer community.

Gary, to add, we are deploying go-to-market resources more assertively and also optimizing how we deploy existing field resources. We've made changes around how we drive our sales force and teams, and we're seeing positive early results from those changes.

The next question will come from Craig Kinnison with Baird. Please go ahead.

Hi, good afternoon. Quick follow-up on dealer onboarding: what's the typical path dealers take to become a seller? Do they start as a buyer and then migrate to selling, or are the paths more varied?

Thanks, Craig. Paths are varied, but many dealers' first experience with us is as a buyer, particularly through OEM-branded private-label marketplaces where they may not realize OPENLANE powers that channel. For many franchise dealers, buying in the OEM channel is the first step. Through go-to-market engagement, we aim to introduce the full solution set and show how selling with us can be valuable. Our objective is to be the starting point for dealers: many dealers are integrating OPENLANE at the front end of their process so that vehicles they don't intend for retail start on OPENLANE first. In our private-label off-lease experience, we sometimes sell a high percentage of vehicles initially and then allocate remaining units to other channels. We're increasingly achieving that front-of-funnel position with more dealers.

Thanks. One more for AFC: I know you have an investor call upcoming, but internally have you concluded the market doesn't value AFC properly? How would you characterize fair value for AFC and what drives that thinking?

Craig, we believe AFC's financial performance and metrics such as return on equity are strong and may not be fully appreciated by the market. It would be inappropriate for me to declare a specific valuation; that's for investors to determine. We're aiming to improve market understanding through the November 19 session by providing enhanced disclosures and metrics to showcase AFC's financial performance and strategic value to OPENLANE. AFC has become a larger piece of OPENLANE over time as we've transformed the company, and we intend to be intentional and deliberate in how we explain and position the business to the investment community.

The next question will come from John Healy with NorthCoast Research. Please go ahead.

Thanks for taking my question. Peter, you mentioned that 2025 might be a tough year for the commercial side with lower off-lease volumes. Some month-to-month fluctuations could be steep. With that in mind, do you view 2025 as a year where you can grow volume in aggregate? Also, if off-lease volumes contract next year, could that create pressure on ARPU for OPENLANE on the commercial side given fewer cars at the top of the funnel?

John, it's nuanced. We know there will be lower off-lease maturities in 2025 because of the lower lease originations in 2022. Offsetting that, payoff rates — vehicles paid off preterm — may decline somewhat, which can offset lower maturities depending on how those factors interact. In Q3, during this period, we were able to grow commercial volumes, which is a positive start. We will continue to monitor how these dynamics evolve. We also plan to lean into dealer volume growth and deepen commercial seller relationships. Our commercial sellers see us as a value-added partner, and many are experimenting with selling more vehicles in the open channel to avoid logistics and costs associated with physical auctions. While 2025 may have headwinds, we're continuing to invest and prepare for a stronger 2026 when leases written in 2023 mature and the commercial story should improve.

John, we've modeled scenarios including base, better, and worst cases regarding volume and ARPU. Even in a worst-case model, the impact on our marketplace business is not expected to be a significant headwind. In a base or better case, we expect the business to remain strong as we work through the 2025 period.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Peter Kelly for any closing remarks. Please go ahead.

Thank you for your questions and for joining the call this afternoon. As I said at the beginning, I believe our third quarter results clearly demonstrate the power of OPENLANE. I'm very optimistic about how OPENLANE is positioned to capture the opportunities that lie ahead. We appreciate your interest in our company and we look forward to hosting the AFC investor update on November 19 and our Q4 and year-end earnings call early next year. We look forward to those and wish you all a very great evening. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.