Good morning, and welcome to the KAR Auction Services Inc 2022 Year-End Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mike Eliason, Treasurer and Vice President Investor Relations. Please go ahead. Thanks, Kate. Good morning, thank you for joining us today for the KAR Global Fourth Quarter 2022 Earnings Conference Call. Today, we discuss the financial performance of KAR Global for the quarter ended December 31st, 2022. 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 KAR'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'll 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 issued yesterday, which is also available in the investor relations section of our website. Now I'd like to turn this call over to KAR Global CEO, Peter Kelly. Peter? Thank you, Mike, and good morning, everybody. I'm delighted to be here this morning to provide you with an update on KAR Global. During today's call, I will provide additional information and detail relating to the following items. Our fourth quarter and full year 2022 performance, our view of the current market factors impacting our industry, our outlook for 2023 and beyond, and a summary of our capital allocation activities. I'm going to speak about our business in two segments, our marketplace segment, which we formerly called the ADESA segment, and our finance segment, which we formerly called the AFC segment. To begin, Q4 was our second full quarter as a more asset-light digital marketplace company. Against the backdrop of an unusual and still very volume constrained industry environment, we increased revenue and total gross profit while reducing our overall cost structure. We made significant progress to position our company for improved performance in 2023 by simplifying our business and consolidating a number of our platforms and operations. We positioned our company for growth in 2023 and beyond. Let me touch on some of the specific highlights of our fourth quarter and full year performance. For the fourth quarter, we generated $373 million in revenue, a 4% increase versus the same quarter of the prior year. Purchased vehicle revenue represented 12% of total revenue in the quarter. We generated total gross profit of $171 million, an increase of 4% from Q4 of the prior year. Gross profit represented 52.1% of revenue, excluding purchased vehicles. This result resulted in Adjusted EBITDA of $56.5 million in Q4. For the full year 2022, KAR generated over $1.5 billion in revenue. That was a 5% increase compared to 2021. Purchased vehicle revenue represented approximately 12% of total revenue for the year. The company generated total gross profit of $685 million, an increase of 4% over the prior year. Gross profit represented 51.3% of revenue, excluding purchased vehicles. That resulted in 2022 Adjusted EBITDA of $231 million, which was below the lower end of our guidance range at $245. Specific to our marketplace segment, we sold approximately 289,000 vehicles in the quarter and 1.3 million for the full year. We again saw solid marketplace participation from both buyers and sellers, with used vehicle values declined throughout the quarter and conversion rates remained lower than the prior year. Revenue in the marketplace segment decreased 2% compared to Q4 of 2021, and also 2% compared to the full year of 2021. We experienced another strong quarter of performance as AFC closed out a successful 2022. Q4 revenue in the finance segment was $101 million. That was an increase of 27% over Q4 of the prior year, driven by a 15% growth in transactions and an 11% increase in revenue per transaction. The finance segment generated $376 million in revenue. That was a 30% increase versus 2021, that was driven by a 10% growth in transactions and an 18% increase in revenue per transaction to $241. I'd now like to highlight a number of areas where we made important progress in the quarter, progress that I believe will benefit our performance in 2023 and beyond. The first of these is platform consolidation. As I mentioned on prior calls, one of our primary objectives here at KAR is to simplify our business and the customer experience. We have now completed the integration of BacklotCars and CARWAVE and have retired the CARWAVE platform and brand. The new auction format within BacklotCars has been successfully rolled out in CARWAVE's core markets, we're now focused on the national rollout of this auction format across the United States over the course of 2023. In Canada, we also continue to make progress consolidating the TradeRev and ADESA marketplaces. Using feedback and input from our pilot customers, we're finalizing the development work to connect all of our Canadian sellers, buyers, and vehicles into a single digital marketplace. By mid-2023, we expect to have one Canadian platform and one simplified customer experience. To support this change, we have also consolidated the leadership of our Canadian operations to better align our growth strategy, product roadmap, as well as our sales, marketing, and customer support functions. In our European business, we've successfully migrated the standalone ADESA UK technology and our dealer-to-dealer platform in Germany onto our ADESA Europe platform. This consolidates our technology, processes, and customers onto a single platform in that market, and the early feedback has been very positive there also. Now, we anticipate making additional progress on these consolidation and simplification efforts in 2023. We will also be extending this work across our other brands, products, and services to better align them with our marketplace strategy. Ultimately, we believe that simplification will improve the customer experience and generate higher levels of customer engagement. Internally, it will also help reduce our IT maintenance costs, better focus our sales and marketing efforts, and accelerate new products and feature development. This brings me to a second area of strategic focus that I'd like to cover, and that is cost management. Last year, we committed to reducing our costs by $30 million by the end of 2022. I'm pleased that we achieved that goal, but our work in this area is not complete. Cost management remains a key part of our agenda, and cost consciousness will be a key part of our culture here at KAR. The savings that we achieved in 2022 are part of an ongoing initiative that will continue through all of this year. We have a detailed roadmap in place that we believe will deliver impact of a similar scale to what we achieved in 2022. One of the primary levers that will help us achieve these additional savings is the expansion of our global shared services model and leveraging it to improve the efficiency, consistency, and cost structure in our technology and business operations. This initiative is already well underway with partners and locations selected in India and the Philippines, and we will continue building this out through the remainder of 2023 and into 2024. The nature of this work involves ramping up resources in one area while other resources are still in place. While we do expect to see some in-year benefits during 2023, we will also see some overlapping costs and the full impact may not be apparent until next year. What excites me more than our cost management activities, however, are the many opportunities that KAR has for growth. First, I believe that there is a secular shift towards digital underway in our industry, affecting both commercial and dealer-owned inventory. Digital channels have gained share in the past number of years. We are positioned on the right side of that shift, and we will continue to benefit from that. We are also highly focused on growing our market share within our current offerings. We have a strong differentiation as a digital leader with uniquely strong position with both commercial sellers and dealers, also with the scale, profitability, and strong cash flows to support our investments. We have mapped out several priority areas for innovation that will deepen our product portfolio, expand our customer relationships, and unlock new revenue streams for our company. To give you a few examples of these. First, we plan to roll out the auction format on Backlot Cars to all U.S. markets within the current year. We see this as a lever to drive further customer adoption and additional volume in that channel. Second, we plan to integrate our commercial vehicles, mainly off-lease vehicles and rental vehicles, with our dealer-owned vehicles into one digital marketplace venue before the end of this year. This will increase the scale and breadth of our offering. It will increase the selection for buyers and also improve network effects. One marketplace for all of our open sale vehicles and for all of our sellers and buyers will be very powerful indeed. Third, AFC has gained share over the past number of years, and we see further opportunity for AFC to grow its customer base and its portfolio, particularly as dealers have more inventory on their lots and more inventory to finance. Finally, also in relation to AFC, we plan to increase the attach rate of AFC financing within our marketplaces through a combination of cross-channel sales and marketing efforts, and also a simplified customer experience at the checkout. We have teams working on all of these initiatives and on many others, and I look forward to updating you on our progress on future calls. I'd now like to look towards the future and provide some details around the industry outlook and macro environment. From a macro environment perspective, we are beginning to see some positive signals of improvement. First, many of our commercial customers have indicated an expectation of increased new vehicle production in 2023. We are now seeing new vehicle inventory on dealer lots is starting to increase with increased days supply. These two factors are the necessary ingredients to balancing supply and demand in the used vehicle market. Shifting to used vehicle values, we expect the significant price declines that we witnessed in the second half of 2022 to abate in the spring market conditions that typically prevail from January through May. We expect some downward pressure on used vehicle values will become evident again in the second half of this year. This may cause short-term pressure on conversion rates. I believe that in the long run, it will ultimately lead to greater transaction volume in the wholesale marketplace. Looking at the dealer-to-dealer space, according to industry data, in Q4, physical auction dealer-to-dealer volumes fell to the lowest quarterly level since the onset of the pandemic. While volumes were also down in our digital channels, I was encouraged that we continued to grow new dealer registrations and increase our buyer and seller participation. It's also worth commenting that our CARWAVE migration likely cost us some volume in Q4 as some dealers had to learn a new platform. We believe these effects were limited to Q4. Currently, adoption continues to improve and dealers have been positive about the increased choice and flexibility that our platform now provides. I'm excited about the opportunities ahead as we introduce this format to more dealers in new markets. In terms of the off-lease segment, in recent discussions with commercial customers, a number of them have signaled that we should expect a meaningful increase in off-lease volumes later in 2023. While that would undoubtedly be a positive for our business, we are being conservative for now and not modeling in any significant increase since we've had signals before that proved incorrect. A key question will be how many of the off-lease vehicles that are scheduled to mature later this year will enter the marketing channel when those leases end. According to our data, the average amount of equity value, that is the difference between the market value of maturing lease and the residual value of the lease contract, has declined by approximately 50% since it peaked in April of last year. This decline should help increase the volume of vehicles flowing into the wholesale marketplace over time. I would point out that we are now in these first weeks of this year, starting to see the first evidence of this happening in some, but not in all of our customers portfolios. Finally, though our footprint is smaller in the rental and repossession categories, we are also starting to see some positive signs, and this, I believe, is a positive signal for our business also. Rental customers are beginning to take delivery of more new vehicles, and this should generate increased sales of older vehicles in their fleets. Repossession activity is increasing nationally, which many view as a leading indicator for the return of a more normalized industry environment. Looking at our finance segment, we see an opportunity to continue to expand our customer base and our book of business. AFC has gained share over the past number of years, but has it done so in a disciplined way, enabling AFC to manage risk and limit losses. We plan to continue in the same. We anticipate an increased risk environment in 2023 due to the combination of used vehicle price declines and also a higher interest rate environment. AFC actively monitors that risk through a combination of technology, data, and feet on the street, and works directly with dealers to mitigate the impacts of these business pressures. The bottom line here is that we believe AFC will continue to make a meaningful and positive contribution to KAR's overall performance. I'd like to provide some insight on my expectations for 2023. First, as we enter 2023, I believe that KAR is positioned very differently than we were at the beginning of last year. We have a clear digital focus. We have paid down the majority of our debt. We have meaningfully reduced our cost structure. We are consolidating our platforms and simplifying our business. We're beginning to see the first signs of a commercial volume recovery. We have a broad pipeline of innovation and growth initiatives, and we're able to support these investments through the cash flows and profits that this business generates. While these are all positive, at the same time, some of the market challenges that existed in 2022 are still present today to varying degrees. New vehicle production remains below normal, with modest increases expected this year. Volumes in the wholesale marketplace are expected to remain below normal in 2023. While we believe that lower used vehicle values will help drive more volume and will be a long-term positive for us, an environment where used vehicle values are declining may put short-term pressure on conversion rates before those longer term benefits are realized. Lastly, those price declines, coupled with a high interest rate, may create a higher risk environment in our finance business, as I've already mentioned. Based on all of these factors and our internal analysis, we believe that for the full year 2023, KAR can deliver Adjusted EBITDA in the range of $250 million-$270 million. The management team and I are committed to delivering this result. This level of performance will also enable us to invest in the people, platforms and technology necessary to support our customers and our strategy for growth. Our guidance is based on similar marketplace volumes to last year. Upside scenarios to a range would include a faster than expected commercial volume recovery and an acceleration in dealer to dealer volumes. Downside scenarios include a further contraction in wholesale supply below last year's levels and or an increased risk beyond our expectations at AFC. As we look beyond 2023, we recognize that the commercial volume recovery has been more delayed than we anticipated. For example, lower lease originations during 2022 will present a headwind to off-lease volumes in 2025. This leads me to conclude that our previous estimate of $500 million in Adjusted EBITDA in 2025 is likely unachievable. However, I do believe that we can grow our consolidated Adjusted EBITDA by a compound annual growth rate of between 15%-20% over the next several years. I believe that we can achieve this through a combination of organic growth in our volume and share, continued cost management, and the strategic expansion of our products and services offerings. As I stated earlier, there are a lot of new opportunities available to KAR, and I believe that our strategy and capabilities position us well to capture those. I'd now like to provide a brief recap on our capital allocation activities. During 2022, we made no material acquisitions and our primary focus was on integrating the platforms, teams, and technologies acquired in prior years. In 2022, we completed a major divestiture that greatly simplified our business. This allowed us to reduce our cost structure while utilizing the proceeds to pay off debt, invest in the business and repurchase KAR shares at an attractive price. Scott will provide more specifics around these activities in the next portion of this call. Looking to 2023, we expect our business will continue to deliver strong positive cash flows. As at the guidance range that I've stated, we expect that the cash generated by our business after allowances for CapEx, interest payments, taxes and preferred dividends, could reduce our company's net debt by another approximately $80 million-$85 million over the course of this year. Scott will provide more details. Any excess cash flow would follow our stated capital allocation priorities, which include paying off debt, repurchasing KAR shares, and exploring strategic acquisitions should they arise. To summarize my key messages for today, in Q4 we performed well against a backdrop of a still challenging economic and industry environment, and we experienced another solid quarter of performance in our finance business. We are consolidating our platforms and executing on a multi-year plan to simplify our business. We achieved our 2022 cost savings targets, and we have a clear roadmap to realize significant additional savings in 2023 and beyond. We are highly focused on long-term growth. We have a differentiated offering, a diverse and expanding customer base that includes commercial and dealer with strength and scale in both. We have a large addressable market in which to innovate and invest, and we have several exciting initiatives on our growth agenda for 2023, and I will update you on their progress in future calls. Overall, I'm energized by the progress we made in 2022 to transform our company and to position KAR for future success. I believe that this will translate into improved performance in 2023 and for many years to come. That concludes my prepared remarks. As I mentioned in our last call, we are currently conducting a national search for a new chief financial officer. Joining me today is our Interim Chief Financial Officer, Scott Anderson. Scott will provide further detail on our financial results. Scott. Thank you, Peter. As Peter has already commented on many of our financial metrics, I only have a couple of additional areas to review. We have made one disclosure change. We will no longer be providing on-premise and off-premise vehicle sold amounts for our marketplace segment. Because we have moved to a digital business model, we believe the breakdown is no longer needed to measure the success of our business. Looking at the fourth quarter, consolidated revenues, excluding purchased vehicle sales, increased 7% in the quarter to $327.8 million. Marketplace segment revenues, excluding purchased vehicle sales, were flat with the prior year at $227.1 million and generated approximately 69% of the consolidated amount. Marketplace vehicles sold declined 15% to 289,000 units due to the market conditions Peter highlighted. Auction fees per unit declined approximately 5% to $280 as a result of lower vehicle values. Service revenues increased 16% due to increases in repossession, transportation, and technology services provided. Attachment of these marketplace services increased, but it's important to note that not all services are attached to our marketplace transactions. For example, repossession services provided through our RDN and PAR platforms grew and generally do not attach to a marketplace transaction. Increased service revenues generated in a challenging industry environment highlight our diversified revenue streams that can be generated in varied market conditions. Service revenues generally are lower margin compared to auction fees, and therefore, our consolidated gross margins, excluding purchased vehicle sales, declined to 52% from 54% in the fourth quarter of 2021, largely due to increases in the lower margin services provided. Finance segment revenues accounted for $100.7 million or 31% of consolidated revenues, excluding purchased vehicle sales. Finance segment revenues increased 27% in the quarter due to strong volume, fee, and interest income growth. AFC's provision for credit losses increased to 1.1% of the average managed receivables for the quarter. Long term, the provision for credit losses is expected to be under 2% annually. The actual losses in any particular quarter could deviate from this range. We anticipate increased credit losses from historical low amounts due to an economic slowdown in declining wholesale used car prices, we believe the floorplan business has room for additional volume and fee growth as industry supply returns. Let me provide some additional color on SG&A. Fourth quarter SG&A was $93 million, which was $16 million lower than the third quarter due to execution of our cost-saving initiatives and an approximate $9 million reduction in non-cash compensation amounts compared to Q3. Non-cash compensation decreased as a portion of the performance awards are no longer expected to vest. As Peter mentioned, we have initiatives to continue to reduce long-term SG&A spend, and we'll provide updates as we progress. One item that did affect fourth quarter performance was the sale of excess land in Montreal, which resulted in a pre-tax gain of approximately $34 million. The gain is segregated on a separate line item in the income statement, and this gain is excluded from Adjusted EBITDA. On the other hand, the gain is included in our net income from continuing operations per share and operating adjusted earnings per share amounts. When comparing 2022 results with 2021, prior year Adjusted EBITDA included $5 million quarter to date and $32 million year to date of realized gains on the sale of strategic investments. As a reminder, we occasionally invest in certain early-stage auto-related enterprises. In 2021, some of those companies went public, and we monetized a portion of our investment. Going forward, we continue to hold a small amount of these investments, but do not anticipate monetizing any amounts in the near term. Next, I will highlight our strong capital structure. We ended the year with $180 million in available cash and $161 million of available revolving line of credit, which provides ample liquidity to execute our strategy. In terms of capital allocation activities, let me summarize the significant items for the full year 2022. Our capital expenditures aggregated to $61 million. In 2022, we also repurchased 12.6 million shares of KAR stock, which accounted for approximately 10% of our common stock outstanding for $182 million. Most importantly, the company generated $2.2 billion of gross proceeds from the sale of the U.S. physical auction business. Under terms of our credit agreement, net cash proceeds from the transaction were used to repay $926 million of our Term Loan B6. The terms of the senior note indenture specify that excess proceeds must be reinvested or used to pay down debt within one year of the transaction. We repurchased $600 million of the senior notes in August 2022 in a tender offer, and approximately $140 million of the remaining senior notes are classified as current debt at December 31st, 2022. We have lowered our outstanding obligations, we expect our net leverage target to be approximately 1x-2x Adjusted EBITDA going forward, which is more appropriate for an asset-light business. Within that framework, we will be looking for windows of opportunity in the debt markets to extend our revolver maturity date and put in place a more permanent debt structure. Let me close with some comments on guidance. As Peter mentioned, we expect 2023 Adjusted EBITDA to be between $250 million and $270 million. We will also continue to invest in our digital strategy and as a result, we expect capital expenditures of approximately $65 million in 2023. In addition, with leverage of 1x-2x net debt to Adjusted EBITDA, we expect cash interest on corporate debt of approximately $35 million-$45 million. We also expect cash taxes of approximately $25 million-$30 million. Cash dividends on preferred stocks are expected to be $11 million per quarter or $44 million for the year. This could result in a reduction of net debt by approximately $80 million-$85 million, assuming no other capital allocation activity and working capital changes. We believe these assumptions will generate operating adjusted earnings per diluted share of $0.37-$0.47. The midpoint of this range is similar to $0.43 earned in 2022. 2022 included a $0.16 per share non-recurring benefit from the Montreal real estate gain. No such recurring items are included in our 2023 guidance. I have one housekeeping item. We will be filing our 10-K within the next week. That concludes my remarks, and I will turn over to Kate to begin Q&A. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then two. The first question is from Rajat Gupta, JP Morgan. Please go ahead. Great. Thanks for taking the question. This is Rajat, one for Ryan. Maybe first question, you know, on the fourth quarter. The gross profit per unit took a step down sequentially, you know, more than, you know, the revenue per unit decline. Would you be able to elaborate on the drivers of that? You know, how should we think about that trajectory into 2023? And I have a follow-up. Thanks. Yeah, Rajat. I think gross profit. You know, I mentioned it was a declining used vehicle value environment. In that environment, as vehicle prices came down, there was some negative on, you know, buy fee revenue. That, that probably flowed through into gross profit per unit. I think that was a factor. We had also some other more technical accounting items that impacted gross profit in the fourth quarter that I don't think will recur. But, I think I'd say vehicle values would be the principal one. Then when you have lower conversion rates, you know, this is another factor, it puts pressure on gross profit because, you know, if you think about you're inspecting. You know, a greater number of vehicles per every vehicle sold, for example, right? When it comes to lower conversion rates. We generally find that when conversion rates are lower, which they were, gross profit per unit would be a little bit under pressure. You know, the other metric I look at on gross profit, though, is the greater than 50% of consolidated net revenues as, if anything, maybe a more important metric that I use internally to manage the health of the business. I was pleased that we, you know, delivered gross profit above the 50% target, for the quarter. Got it. Got it. Great. Thanks for that color. You mentioned 15%-20% EBITDA CAGR going forward. Could you help us like the confidence of that? How should we think about volume recovery you're expecting that flows through that? Also how that volume recovery is flowing to gross profit and the SG&A leverage on that. Maybe just on SG&A, based on the cost savings action and just the overall cost actions you've taken, how much of that should now be treated as fixed versus variable in nature? Thanks. Rajat. A lot packed into that question there. First, if I look at the sort of go forward growth, yes, I believe a 15%-20% consolidated, you know, adjusted growth and Adjusted EBITDA over multiple consecutive years is what we believe this business can deliver, and we're focused on delivering that organically. I think the company has opportunities for growth across the entire business. If I look at our commercial volumes, we've got a strong presence with commercial as you know. Those volumes have been under pressure. We see opportunities to see volume growth in that category, but also I think strong conversion rates in that category over the long term as well. Opportunities there. I think in digital dealer-to-dealer, my fundamental belief is that there is a secular shift underway from physical towards digital offsite, off-premise channels. We're strong in that category. We intend to grow in that category, and frankly intend to gain share in that category. I think we're gonna grow in that segment. I think our services businesses, inspections, logistics, et cetera, have been under a lot of pressure the last couple of years. Some of them losing money because of very low volumes. We've been addressing that. I think there's a chance for those businesses to get back towards and frankly, ultimately above historical levels of profitability as well over time. Even AFC, which has been a strong performer, as you know, for the last number of years. I think there are opportunities for growth there. I think it's gonna be more modest growth in that, in that part of the business. AFC will be a smaller percentage of our total earnings over time because the marketplace business we expect to grow much faster. We think AFC will also grow modestly and will continue to be a strong performer. All of those things give me confidence in the growth opportunity for this company. Switching to the SG&A question. I guess, you know, I'm pleased with the progress we made. The progress we made in 2022 was part of a much larger program that we've been executing across the business since the divestiture that has roadmap to continue into the early part of next year. We have numerous initiatives in the works this year to continue on that vein. I expect to make more progress. As I mentioned, some of the benefits won't be fully apparent until next year because we have, you know, overlap in costs and stuff in the context of 2023. We'll work through that. I think ultimately, SG&A as a percentage of our total revenue or percentage of our net revenue, we view that declining over time. In terms of what percentage of SG&A is fixed versus variable, I think one of the characteristics of a more digital business, in my view, is that they do tend to operate more as a fixed cost kind of business. There is less variable tied to, you know, each incremental transaction. That's why they scale so well. That's why when you add in more volume on top, you get sort of outsized performance, you know, further down the P&L. I guess that's a fair assessment that over time, our SG&A structure will start to look a little bit more fixed in nature, with less variable cost. But I also know that in the long run, all costs are variable, right? You know, that's also true, and we'll create the right cost structure for the business that we have. Got it. Good? Yeah. Thanks, Rajat. Great. Thanks for all that color. The next question is from John Murphy of Bank of America. Please go ahead. Good morning, guys. Just, Peter, as you think about this, you know, I mean, I think there's a lot going on in the industry and the flow of vehicles is hotly debated and what may happen with the, you know, the recovery. You know, many folks are looking for 2023 and 2024 to be sort of flattish years in remarketing. It might be better than that. But as you think about this transformation, you know, what are the KPIs that you look at to sort of gauge the progress? Because I think a lot of investors may be frustrated because they, you know, the volumes might not recover. I mean, debatable point. Progress may be tough to see in that kind of environment. Is it simply the EBITDA, you know, CAGR of 15%-20% that people should be looking at? Are there other KPIs that you think you're gonna be able to show us over the next year or two in what might be a tough industry backdrop to sort of people could really understand the progress that you're making? Yeah. Thank you, John. Yeah, a couple of things. I would say all of our modeling is based on the industry volumes remaining below normal for the next number of years. The growth I'm talking about is in the context of an industry that remains below normal. I would say, you know, wholesale industry volumes are still down 30%+, maybe as much as 40% from pre-pandemic levels. Our assumptions on volume inherent in our guidance are essentially flat volumes relative to last year. I think if we see faster recovery or an acceleration on our digital dealer to dealer, that would represent upside versus our guidance, as I said. I think we're being conservative in our modeling, or realistic or however you wanna call it, you know. My personal belief is we're at the bottom in terms of industry volumes, and we're going to see a gradual but sustained recovery over time over multiple years. That'll be a positive for us. In terms of KPIs, you know, in the marketplace business, you know, our results correlate more than closer, you know, the volume sold per quarter is a key driver. Volume sold obviously is a critical KPI in our business. Volume sold is a function of volume offered times conversion rate, right? We obviously look at both of those metrics. You know, volume offered is a function of, you know, participating sellers and conversion rate participating buyers. We look at, you know, seller and buyer participation in our digital marketplaces. We also look at, you know, what sort of results are our customers achieving beyond conversion rates. Price, price attained in our marketplaces indexed against, you know, some benchmarks. We look at all these metrics and many others as functions of the health of our business. You know, I mentioned sort of simplification earlier and trying to have a simpler business. Let me go into sort of one of the thoughts behind that. I think one of the challenges this company has had is that our marketplaces have been fragmented, right? We have volumes, you know, total volumes last year of $1.3 million, but fragmented across multiple different digital venues. I think that creates two challenges to the business. One is a cost challenge supporting multiple platforms. The other is maybe even more impactful. It's a network effect challenge, where you're fragmenting your demand and your scale across multiple marketplaces. So a real driver of simplification is to consolidate that, consolidate our volumes, all of our participating sellers, all of our participating buyers into one marketplace. That creates benefits for all marketplace participants, right? If you can put your car into a location where all the buyers are, you're likely to get a better outcome. That's really behind a lot of our simplification work. You know, I mentioned the CARWAVE backlog migration that we completed last quarter. It was a challenging migration in the moment, but now that it's done, I can see the benefits and the benefit of having those vehicles in a bigger marketplace with considerably more buyers in that marketplace. Listen, these are the type of things we're looking at. Bringing our commercial vehicles and our dealer-owned vehicles into one marketplace will improve the health, the performance, and the outcomes that we deliver for customers. That will help us to scale and grow our business, increase customer adoption, et cetera. This company has a tremendous amount of opportunity. I think we're very focused on executing that. Yeah, I believe the opportunity for growth that I talked about is very attainable. Just two quick housekeeping. Can you just remind us what the services agreements and the expectation from what you're offering or what you're giving to Carvana on the tech side and what kind of fees you're getting here in sort of your guidance for 2023? Then also you mentioned AFC losses would stay under 2%, but 2% sounds like it's a reasonable, like normal level. You know, when do you think we creep up there? Should you be taking more risk in AFC if those losses stay lower to grow the business significantly more than greater than where it is right now? Thanks, John. I don't wanna comment too much on the Carvana arrangement, it's the same arrangement as we had last year. We provide some services. There's some fees attached. It's a small percentage of our total revenues. Obviously, we're very focused as well on the separation activities that continue and that's generally going well. On AFC, the 2% would be above our historical mean or median for that losses number. 2% is higher than historical. Our budget, it doesn't reflect 2% this year, I think Scott said it in any given, y ou know, we may in a quarter see it at 2%, for the year we expect it to be less. I think when it comes to our AFC business, we've always been cautious and conservative in our approach to growth. That's where I'd like to continue. Simply put, I just, you know, we just wanna be cautious in terms of, yeah, there's a bigger opportunity to grow, but we like to run this business conservatively. Keeping the losses below that level I think is important for us in terms of our stewardship of the business. Great. Thank you very much. The next question is from Gary Prestopino of Barrington Research. Please go ahead. Good morning, Peter. Hey, just a couple of questions here. Could you maybe comment on the year-over-year change in conversion ratios? I mean, how much were they down versus last year at this time? If they had stayed at the level where they were, you know, may you have hit the low end of your guidance. I'm just trying to get an idea of what the impact on these conversion ratios are having on your volume for growth. Yeah. Gary, thank you. You know, the conversion rates, they are very important. I'd say you could argue that in a digital business, they're more important even than in a physical. If you think of the way the physical auction works, often when a car goes in the gate, it ultimately doesn't come out the gate until it's sold. The conversion rate may be low one week, the seller's gonna run the car next week or run it for four more weeks and ultimately sell it. In a digital marketplace, if you don't sell the car, maybe it's gonna move on to the physical channel. We're kind of taking a slice of chunk of the cars out before they move through that process. Conversion rates were down across the entire industry. In fact, I was looking at conversion rates at physical auctions in Q4 were the lowest they were since Q2 of 2020, so the depths of the pandemic. It was a very weak quarter from conversion rates in our industry. I'd say generally conversion rates were down 5 to 10 points across our markets. I'm being that's a bit of a wide range, Gary. I don't have the specific numbers in front of me here, but 5 to 10 points, from, say, a 55-ish level to a, you know, 45 to 50-ish level, something like that, based on some of the marketplaces I'm thinking about. You can do the math yourself on what that impacts in sales. If you've got a market converting at 50% and that drops to 40%, that's effectively a 20% drop in sales, right? Right. Conversion rates were weak. That's, I think if conversion rates had been the same as the prior year, yeah, we would probably have hit the lower end of the range. The one thing I will say, though, is it's been interesting, but as soon as we turned into 2023, it's almost like a page turned in the book and conversion rates demand has really picked up and conversion rates are back again at strong historical levels. Some of that is the spring market. We have a spring market effect in this industry most years, so I think we're seeing a strong spring market this year, with strong demand from buyers and increased conversion rates across the board. How long that'll continue remains to be seen, but certainly in the current moment in the spring market, we're seeing strong conversion rates. When you say it's back to historic levels, is that somewhere close to 60% or is that too high? I'm just, because we have these different venues, I'd say in some of our marketplaces it is 60%, and in a couple it's probably a little below that. I'd say that's in that 50%-65% range, yeah, something like that. Okay. Lastly, could you just comment on with your digital dealer to dealer platforms, with both companies and now with the consolidation that's going on, how far are you penetrated into the franchise dealer market, overall with this product? I'd say our industry is past the early adopter phase. We're into the broad market where many dealers are using these types of platforms and channels. At the same time, when we look at the total volume of dealer-consigned vehicles, they're still physical auctions would still be approximately three times the total volume of the combined digital channels, I would say, in the dealers to dealer segment. You know, a strong penetration in terms of number of dealers using the platform and continuing to increase, but still a minority of all the vehicles being sold in the marketplace. That said, Gary, there's no question in my mind, but the digital channels have gained share. If you just look over the last number of years, digital has gained share. I expect that to continue. It seems to me that this, you know, if you think of our digital offering, we will inspect the car at your dealership. It will be on our marketplace immediately, likely sold within, certainly within 24 hours, moved pretty much immediately after that. Funds flow, title flow. It's a very efficient process. With that, you have this national buyer base. You've it's immediately offered to a national buyer base who are online ready to bid right now, as opposed to waiting for some scheduled sale and for the buyers that just happen to be showing up at that location. I think the digital offering is very strong. I think it's gonna gain share. I think we're gonna gain share with that. One, just one last quick question and I'll jump off. I mean, on the digital dealer to dealer versus auctions that are out there, what kind of price differential are you seeing on realization on digital to digital versus what's out there in the physical market? Well, you know, we benchmark every car we offer and sell in that channel versus market. We believe our digital offerings perform extremely well. Obviously we're continuing to execute the strategies to further improve that because that's mission critical for our sellers. They have to get the best price. I would say, yeah, I think digital channels perform very, very well on that metric, as good or better than the alternatives. Making that apparent to our customers is a key part of our, you know, sales and marketing process. Great. Okay. Thank you. Thank you, Gary. The next question is from Bob Labick of CJS Securities. Please go ahead. Hi, good morning. It's Peter Lukas for Bob. You guys covered a lot. Just wanted to touch on, you talked about platform consolidation in terms of the dealer to dealer strategy. Have you settled on a single type of auction? In terms of what types of cars are better for timed auctions versus the bid ask market, and is that something that's segregated by price of vehicle or how do you think about that? Pete, thank you. That is a very interesting question. You know, there are absolutely some things that have become apparent now that we have both of these offerings in the market. If I look at BacklotCars today, essentially there are two offerings. There's a 24/7 marketplace, vehicles is kind of a bid ask marketplace where the buyer and seller interact and they come to a clearing price and the vehicle sells. That's what BacklotCars has been historically. That performs really, really well. It tends to have very strong conversion rates and strong price attainment. I would say it's particularly strong on lower value vehicles, I would say sub $15,000, certainly sub $10,000 dollar vehicles. That model seems to work really, really well. Its weakness frankly has been with higher value vehicles, you know, $15,000 and greater. Performed quite well, but just not quite as strong. Now that we've got the auction format live, currently we're running that auction two days a week. It's a purely digital auction. Cars are inspected, they're available in a pre-auction process and then visible, bidding takes place over a two-hour window on currently Mondays and Thursdays. I imagine that will over time we'll increase the frequency of that. We may have different days in different markets, different days for different sellers. We've got a lot of flexibility in how we go to market with that. Currently it's two days a week. What we're seeing there is very strong conversion, but a tiny bit below what we're seeing in the marketplace, but we're seeing very, very strong price attainment. If anything, even better price attainment than the marketplace. We're also seeing it perform really, really well on the higher value vehicles. Okay? I think we've got an offering here that's very compelling, addresses all different types of vehicles. I think the other big differentiation that we have here at KAR is we have a deep, deep footprint with commercial sellers. Currently those vehicles, you know, first of all, there hasn't been as many of them over the last year or so, they've been selling in private label sites, et cetera. As more and more cars, those vehicles flow into open sale channels, which I believe they will, we're gonna integrate that volume into one combined marketplace. Our buyers will go to one venue where they're gonna see a tremendous number of dealer owned vehicles and also a tremendous number of commercially owned vehicles, with very easy to use digital tools, digital checkouts, et cetera. I think that's gonna create a unique differentiation for us in the marketplace. I think that's gonna be very, very compelling to all of our customers. I'm excited about that and that's really where our strategy is head. Very helpful. Thanks. Just one more for me in terms of the OPENLANE outlook. What are you seeing? You talked a lot about the market volumes and what you've seen there, but what are you seeing in terms of mix change at auction? Meaning are the dealers auctioning lower priced cars and hanging on to the higher priced ones? How is that helping or hurting you? I guess what I'd say is on OPENLANE, you know, the cars we're selling on OPENLANE are all commercially owned vehicles, by far the majority are off lease. What we're seeing is currently volume similar in level to last year, we're actually seeing a slightly better mix. By that I mean we're seeing a little lower percentage of them selling to the grounding dealer. Last year was in the high 90s. We're seeing that percentage is dropping. The grounding dealer is buying a lower percentage, consequently more vehicles are flowing a little deeper into their marketing funnel where we generate greater revenue per vehicle. Okay? We're seeing that. It's nothing close to normal, it's started to move away from its unusually distorted position that it's been in for the last 12 months. Okay? We're seeing that. The other thing is, as I mentioned in my remarks, a number of our commercial sellers have indicated we should expect significantly more volume later this year. We haven't reflected that in our models. I'm being very cautious around that because I really wanna see it. There have been false dawns before in this journey we've been on. I'm gonna be cautious, but I do believe over time that absolutely should happen. When it happens we'll benefit from that for sure. Very helpful. Thank you. You're welcome. The next question is from Bret Jordan of Jefferies. Please go ahead. Hey guys, this is Patrick Buckley. I'm from Bret Jordan. Thanks for taking our questions. Could you talk a little bit more about the cadence of how you see the marketplace progressing in 2023? Just trying to model out auction versus finance contributions throughout the year, and if we should expect finance to continue being the main driver of the bottom line there. Thanks Patrick, appreciate that question. If we think about our guidance for this year, we expect AFC to continue to be a strong contributor, but slightly lower than its contribution in 2022. We expect AFC to grow its volumes, but vehicle values may be lower than last year. ARPU may be in line or slightly lower than last year, but we're expecting some level of higher risk. AFC's contribution while remaining strong, slightly lower than last year. The growth is all on the marketplace side of the business. Again, it's driven by. On commercial, I think volume's similar to last year. Maybe I think we've modeled a very slight decline, but a stronger mix. On D2D, we've modeled a slightly, a small level of growth, let's say. I hope we can do better, but we've modeled in a small level of growth. You know, coupled with that, reasonably strong margins in line with what you've come to experience with the business and lower SG&A overall. Got it. That's helpful. Thank you. Then I guess a little bit more on the AFC side of things there. What have been the primary drivers of growth beyond rates and loan counts? I guess a little bit more, how do you see those progressing in 2023? Yeah, good question, Patrick. You know, AFC is the number two in its industry, and has been, you know, that's the position it's occupied over many, many years, so it's been a consistent strong number two in the industry. We do believe that over the last three or four years, AFC has gained shares. The gap between AFC and the number one has reduced somewhat over the last number of years. Okay. I would say AFC has done that. Well, it's been by increasing its dealer base. It's the number of dealers using AFC has been the principal driver of that. I'd say AFC, it differentiates itself, I'd say, on strong service, a strong culture of service to the dealer. We try not to compete on price, although obviously price matters, but service. Also expansion of its product portfolio to take on certain activities, that benefit the independent dealer, which is AFC's core customer, and turn those into revenue and profit-generating opportunities for AFC. Got it. That's very helpful. Thanks, guys. Thank you. Kate, I think we've time for one last question. Okay. That question will be from Daniel Imbro of Stephens Inc. Please go ahead. Hey, guys. This is Reed on for Daniel. Appreciate y'all squeezing me in. With the return of off-lease in the coming year, how do you foresee your ability to handle those units as the market normalizes and units need more reconditioning work? Yeah. Daniel, Sorry, Reed. Reed. Okay. I'd say one of the good things about a digital business is it scales. As volume returns, I think scaling the business is not really a challenge for us. You know, we have to process more titles, more funds, but from a technology platform standpoint, you know, we don't have to build a second technology platform. I think the business will scale really, really well. I'm not worried about that. There are some parts of our business, like our auto inspection business, where we may have to hire some inspectors if volumes increase there. We'll deal with that as and when it comes. To your question on reconditioning, I guess the way I view it, Reed, is that in a typical off-lease portfolio, yeah, there are some vehicles that probably benefit from reconditioning before they're sold, but it's a very small percentage. In my view, it's probably 20% of the vehicles that mature. Now that's not a very scientific number, but to put some facts on that, like before the pandemic started, the off-lease conversion rate on our marketplaces was about 55%. Those 55%, none of them were reconditioned. Okay. Those conversion rates in the pandemic and over the last number has increased up into the low 80% levels. Again, none of those 80% vehicles are getting reconditioned. My thesis is that as off-lease volumes return, I think conversion rates will drop back from the 80% level. I don't think they'll ever go back to where they were pre-pandemic. I don't think our sellers want to start sending that volume of vehicles back into physical channels. I think they wanna find ways to increase upstream conversion and reduce their marketing costs. You know, every off-lease vehicle is inspected, it gets a condition grade. In my view, the only vehicles that really need reconditioning that the dealers themselves can't provide are, you know, some of the more damaged grades. That's my personal view. Other people may have different ones, I guess we'll see over time. I'm expecting a strong conversion rates going forward in the off-lease channel, stronger than we saw pre-pandemic. Okay. Very helpful. Thank you for the color. You're welcome. Again, I think that's all the questions we have time for. So thanks everybody for your time this morning and for those questions. I just wanna close out my remarks by reinforcing some of the key messages from earlier today. First of all, while 2022 was a challenging year across our entire industry, I'm pleased with what the team here at KAR accomplished and how we positioned ourselves for success in the future. We are a digital marketplace leader. We have differentiated offerings and a strength that is unique with both commercial sellers and dealers. We have simplified our business, consolidated platforms, and improved our customer experience. We have meaningfully reduced our cost structure, and we've set ourselves up to operate more efficiently in the future. We paid down over $1.5 billion in debt and repurchased approximately 10% of our outstanding common stock. The progress made in 2022 should help us deliver improved performance in 2023, even if industry volumes remain weak. Our guidance is to deliver Adjusted EBITDA of $250 million-$270 million in 2023, and the management team and I are fully committed to achieving that goal. As we look to the future, I believe that the secular shift to digital will continue and that digital platforms will continue to gain share. That will be to our benefit. However, we're not waiting around for this to happen. We are charting our own course, and we have many initiatives in play that we believe will enable us to grow our customer base, increase our market share, and expand our product and service offerings for our customers. I look forward to updating you on our progress in future calls. As we look past 2023, I believe KAR has a compelling opportunity to deliver top-line growth and improve bottom-line performance. I believe we can grow our consolidated Adjusted EBITDA by a compound annual growth rate of 15%-20% over the next several years. I'm excited and energized by the opportunities that lie ahead for this company. We have a differentiated offering, a diverse and expanding customer base, and a large addressable market in which to innovate and invest. With that, we'll end today's call. I look forward to reconnecting in less than 90 days to update you on our first quarter performance. Thank you all very much. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.